**Deloitte Anticipates Investor Shift to CRE Alternative Properties**
*By Connect CRE Staff Writer*
*Tim Coy, Real Estate Research Manager – Deloitte Center for Financial Services*
When most people think of commercial real estate (CRE) investment, core asset types such as multifamily, office, industrial, and retail typically come to mind. According to Deloitte Financial Services, these traditional categories have historically provided investors with steady income, value appreciation, and minimal performance fluctuations.
However, the CRE investment landscape is evolving. A recent Deloitte Financial Services report titled *“Next-Generation Leaders May Accelerate Real Estate Investment in Alternative Properties”* highlights a growing interest in alternative property types. These include data centers, cell towers, life sciences facilities, and single-family rentals. Even lesser-discussed segments like self-storage, senior housing, and student housing are gaining traction among investors.
**Explaining the Shift**
Tim Coy, Real Estate Research Manager at Deloitte Center for Financial Services and one of the report’s authors, explained to Connect CRE that investors began expanding into non-core assets in search of higher yields following the 2008 Global Financial Crisis.
“Larger investors started looking at less mature sectors to achieve better returns,” Coy said. “These types of investments often benefited from sector specialization and collaborations. For instance, joint ventures make it possible for a capital partner to team up with an operator that has domain expertise in a niche market like telecommunications.”
Additionally, shifts in industry leadership are influencing investment trends. Many senior decision-makers who built traditional CRE portfolios are approaching retirement. According to Deloitte’s report, this generational transition is pushing emerging leaders to rethink conventional strategies and explore a wider variety of asset classes.
**By the Numbers**
Deloitte’s research emphasizes that the shift toward alternative properties isn’t just anecdotal — it’s measurable. Key findings include:
– Alternative assets grew at a compound annual growth rate (CAGR) of 10%, from $67 billion in 2000 to over $600 billion in 2024.
– Real Estate Investment Trusts (REITs) increased their allocation to alternatives from 26% in 2000 to more than 50% in 2024.
– Over the past decade, alternative properties posted an annualized return of 11.6%, outperforming the 6.2% return from traditional core assets.
– Deloitte anticipates that by 2034, the value of alternative properties will rise at a 15% CAGR and represent nearly 70% of total industry portfolio value, up from 40% today.
Coy also referenced a prior Deloitte forecast showing that 60% of current CRE industry leaders are expected to retire in the next few years, opening the door for a new generation of leaders who may be more receptive to non-core strategies. “This turnover aligns with asset selection that focuses on achieving excess returns, which we believe can come from alternatives,” he noted.
Another factor driving the interest in alternatives is the potential for greater portfolio diversification. “Expanding the asset mix — in property type or geography — allows investors to align their portfolios based on varying risk/return profiles,” Coy added.
**Cautions and Caveats**
Still, it’s important to weigh the risks. While past performance of alternative assets is encouraging, Coy stresses that historic gains don’t guarantee future results. He also noted that operating such properties often requires specialized experience. “A traditional office investor may not fully understand the intricacies of the manufactured housing market, for instance,” he said.
Additionally, because alternative properties are generally less mature and attract a narrower group of owners and investors, they tend to be more volatile than traditional assets. “Alternatives aren’t a guaranteed way to achieve high returns,” Coy cautioned.
Finally, Coy emphasized that investors shouldn’t disregard core assets entirely. “Maintaining a diversified balance between core and alternative properties can help manage potential risks associated with market volatility,” he said.
As the CRE market continues to evolve, the blending of traditional and alternative investments may become the new norm for strategic portfolio construction.
