Alternative Real Estate: A Growing Force in Institutional Portfolios

Topics: Capital Markets/Commercial Real Estate

The commercial real estate market is evolving, and so are institutional investment strategies. 

While capital has historically favored “traditional” sectors – office, retail, multifamily, and industrial – in today’s dynamic economic landscape, real estate allocations have placed a greater emphasis on alternative real estate sectors as investors seek enhanced return potential, and downside risk mitigation. Once seen as too niche, medical outpatient buildings, senior housing, student housing, manufactured housing communities, build-to-rent communities, and self-storage sectors are now gaining mainstream attention. 

Alternative Real Estate Has Had Historically Strong Performance vs. Traditional Sectors 9 Out of 10 Years Since 2015

A thoughtful allocation strategy is crucial for achieving the portfolio performance and characteristics demanded by today’s investors. Incorporating alternative sectors has the potential to positively impact portfolio outcomes by enhancing returns, minimizing drawdown, reducing volatility, and expanding diversification. This is reflected in the performance of alternative sectors compared with traditional real estate every year from 2018 through 2024, with the exception of 2021, wherein performance was tied for both groups.

Real Estate Sector Returns (2015 - YTD 2025)1

Alternative Sectors vs. Traditional Sectorsalts vs trads blog returns image

Portfolio Impact and Sector Recalibration

The historically strong performance of alternative sectors originates from resilient demand for property types associated with the generational preferences in how we live, work, shop, and play. These demographic-driven demand trends have persisted throughout market cycles, usually resulting in greater performance during good times and minimal impact during challenging markets. In fact, investments made in alternative sectors produced an average annualized rate of return of 9.0% compared to only 5.9% from traditional sectors over the last decade, from 2015 through 2024.1 This demonstrated performance begs the question, “If investing in real estate, why not invest in these alternative sectors of real estate?”

Bottom Line

Alternative real estate is no longer a niche—it’s becoming central to core strategies. Driven by greater investor understanding, improved liquidity, and stronger operations, investment in alternative sectors by institutional managers is forecasted to more than double by 2029.2 We believe these sectors offer an intriguing value opportunity in enhancing real estate portfolio performance and are poised to play a leading role in shaping the future of commercial real estate investing.

 

Sources:

1 NCREIF Expanded NPI. The NPI is a leading benchmark of institutionally owned, private real estate programs. The NPI is based on the unleveraged returns from a large pool of individual, investment grade commercial real estate properties across retail, office, industrial, and apartment sectors. The market values of the properties in the NPI are determined by appraisals rather than by market-based prices of the programs. Notes: Traditional include Industrial, Apartments, Retail, & Traditional Office | Alts include MOB, Senior Housing, Life Science, MHC, Self-Storage, SFR, & Student Housing. Past performance is not a guarantee of future results.

2 https://www.caisgroup.com/articles/an-introduction-to-alternative-investments

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