Alternatives to Drive Growth in the Next Real Estate Cycle

January 28, 2025 | Dennis Yu, Research Analyst

As the real estate market evolves, alternative sectors are expected to drive significant growth in the coming years. Senior housing, cold storage, industrial assets, and data centers are expected to be particularly popular among investors, with each benefiting from unique factors like demographic changes and technological progress. Senior housing stands out as the sector with the highest projected NOI growth (9.7%) due to an aging U.S. population and the growing demand for retirement communities. Additionally, senior housing properties currently present value-add opportunities, as the average occupancy rate of 85% remains below historical norms due to regulatory challenges and restrictions implemented during the COVID-19 pandemic. As these regulatory pressures ease, there is significant potential for occupancy recovery and rent growth. Properties offering a mix of independent living, assisted living, and memory care units are especially attractive, as they cater to the diverse needs of an aging population and ensure steady revenues. These newer facilities, designed to meet the needs of both residents and their families, often achieve higher occupancy rates and command premium rents compared to older properties, enhancing their investment appeal. Regions with favorable climates, such as the Sunbelt and Mountain areas, are particularly attractive for these investments.

The single-family rental and affordable housing sectors are also gaining traction, as rising homeownership costs and a lack of affordable housing have increased demand for these types of properties. Affordable housing, particularly properties supported by government voucher programs, provides resilient income streams and often generates higher rental yields compared to traditional multifamily assets, making these segments essential in addressing housing shortages in high-growth regions. Data centers and digital infrastructure are becoming critical drivers of NOI growth as well, supported by the rising adoption of cloud services, e-commerce, and advanced computing. Meanwhile, smaller-scale industrial assets and cold storage are thriving due to increased demand for temperature-controlled supply chains and multi-tenant facilities that cater to small businesses. Together, these sectors offer durable demand, scalability, and opportunities to benefit from modern supply chain trends.

While the outlook for these alternative real estate sectors is strong, investment in these spaces does not come without risks. Regulatory challenges, energy consumption concerns for data centers, and liquidity issues in niche sectors like cold storage and affordable housing require careful consideration. That said, the structural trends detailed above should serve as tailwinds for alternative real estate in the years ahead.

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