Alternatives Outlook 2024 Report

ALTERNATIVES A U S T R A L I A OUTLOOK 2024

CUSHMAN & WAKEFIELD

CONTENTS

03

13

KEY THEMES

SELF STORAGE

04

14

ALTERNATIVES LANDSCAPE

EDUCATION

05

15

MAJOR TRANSACTIONS 2023

BUILD TO RENT

06

16

GLOBAL OVERVIEW 2023

CO LIVING

07

17

HEALTHCARE

SDA

08

18

MHE (LAND LEASE)

AFFORDABLE HOUSING

09

19

AGED CARE

LIFE SCIENCES

10

20

DATA CENTRES

AGRICULTURE

11

21

PBSA

RENEWABLES

12

22

RETIREMENT

KEY THEMES FOR 2024

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CUSHMAN & WAKEFIELD

KEY THEMES

OPERATIONAL RESILIENCE TO HEADWINDS 01

02

03

04

NAVIGATING NEW FUND FORMATION: CAPITAL VS ASSETS A reasonable number of investment managers ran capital raising processes for funds with alternative asset mandates in 2023. Many found it difficult to raise capital without identified and secured acquisitions. Those that did raise capital are increasingly under pressure to prove their ability to grow portfolios beyond seed assets. This chicken versus egg conundrum continues to impact new entrants to the Australian alternatives sectors given the scarcity of quality and large-scale acquisition opportunities across most alternative sectors. As a result, we believe

LIVING SECTOR APPETITE CONTINUES TO SURGE

SENIOR SECTORS GAIN MOMENTUM Inquiry into senior living continues to grow as investors seek to leverage off Australia’s aging population profile whilst simultaneously finding opportunities in sectors that match rising return expectations. Additionally, the senior living sectors offer opportunities with immediate exposure to income through operational asset acquisitions within more mature sectors such as retirement living and MHE. This contrasts to newer living sectors such as BTR and co-living where development led opportunities remain the primary entrance point at present.

Despite ongoing economic headwinds, many alternative sectors have demonstrated strong resilience, proving less vulnerable than several core sectors that are simultaneously grappling with structural shifts. For example, while the rising cost of living posed a raft of economic challenges in 2023, particular alternative sectors such as manufactured housing estates (MHE) and senior rental assets have showcased robust operating performance as a result of their affordable nature. Furthermore, the essential nature of services such as education, healthcare and aged care assets have supported the medium to long term outlook on investments despite current short-term pressures on operating margins.

Within the alternatives realm, living sectors continued to witness strong investor interest in 2023, both on a local and global scale. Low supply across the broader residential market further bolstered the current investment case for Australian living sectors with operational performance of complete assets exceeding expectations in many instances. Build-to-Rent (BTR) remains the focal point of the living sectors with the Australian BTR sector gaining several new participants in 2023 including Charter Hall, Brookfield and Stockland leading to over 20+ institutional managers now active in the sector.

strategic joint ventures or consolidation amongst major players is likely in 2024.

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CUSHMAN & WAKEFIELD

SIZE OF BUBBLE = RELATIVE SECTOR SIZE

Data Centres

BTR

Private Hospitals

Medical Centres

Self Storage

Student Accommodation

Affordable Housing

Life Science

MHE

Co-Living

SDA

Retirement

Education

Renewables

Leased Agriculture

Aged Care

Film Studios Institutional Interest Levels

Growth Potential

EXPLORING THE LANDSCAPE OF ALTERNATIVES IN 2024

acknowledges the noteworthy surge in both investor interest and the development pipeline across the BTR and data centre markets in recent years. Several both niche and more well-established sectors sit closer to the bottom left-hand corner of the chart due to more modest growth projections. This is not reflective of operational underperformance but rather relatively lower ongoing requirements for new stock based off underlying fundamentals. For example, co-living has seen an increase in activity over 2023 but is expected to remain smaller in size compared to Australia's more established living sectors due to the niche target occupier market. Additionally, the education sector which encompasses various sub sectors including childcare, tertiary education and on campus student housing already has a considerable investable universe with future growth likely to be comparably less on a percentage basis compared to currently smaller but emerging sectors such as BTR and institutional-grade affordable housing.

There is a significant amount of diversity across the Australian alternative sectors. Alternative sectors are typically defined as niche sectors that sit outside core institutional real estate (office, industrial and retail). Additionally, there is considerable overlap between RE (real estate) alternatives and what may be considered infrastructure or private equity investments. This is due to the fact that scale investment into many of these sectors also entails significant

operating company (OpCo) exposure.

In the above figure, the Y-axis offers a comprehensive perspective on institutional investor interest across various alternative asset classes, drawing from Cushman & Wakefield’s oversight over investor mandates and general enquiry. Additionally, the X-axis represents Cushman & Wakefield’s outlook on relative sector growth in relation to existing stock. Positioned in the top right hand corner, the analysis

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CUSHMAN & WAKEFIELD

FIGURE 1: MAJOR ALTERNATIVE TRANSACTIONS 2023

MAJOR ALTERNATIVES TRANSACTIONS 2023

Serenitas Land Lease Portfolio

Healthscope Portfolio

Scape BTR Fund

Student One

Mirvac BTR

Date

May-23

May-23

Sep-23

Oct-23

Jun-23

Portfolio Sale (Healthcare)

Capital Raise (BTR)

Platform Sale (PBSA)

Platform Sale (MHE)

Re-Cap (BTR)

Type

Price (AUD)

1.3 billion

1.5bn*

~500 million 1.0 billion 1.8 billion*

Alternatives market investment activity remained below peak levels in 2023, reflecting the muted environment across real estate capital markets more broadly. Despite operational resilience, the alternatives sector has not remained unaffected to the prevailing macroeconomic environment. Figure 1 highlights key contributors to alternative investment volumes in 2023. Notably, several of these high-profile transactions involved first-time scale investments into their respective Australian sectors. Such examples include Mirvac’s foray into land lease communities via their investment into Serenitas and Blackstone’s acquisition of the Student One platform. Although

many alternatives have high barriers to entry, real estate managers already well versed in Australian capital markets with strong existing investor relationships are well placed to increase exposure to Australian alternatives. Alike the core sectors, most alternative sectors experienced a softening in metrics over the first half of 2023 due to the impact of ongoing economic conditions and the increasing cost of capital. However, sectors such as PBSA and BTR were able to offset this softening through significant rental growth and consequently maintain capital values. While pressures are expected to persist in the first half of 2024, Cushman & Wakefield does not foresee any further material softening across transactions given the scarcity of quality investment opportunities across the market.

APG & Bouwinvest

Mitsubishi Estate

Investor

HMC

Blackstone Mirvac & PEP

* Total fund size, not amount raised

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GLOBAL ALTERNATIVES OVERVIEW 2023

Australia’s alternatives sector has drawn significant interest from offshore capital with global investors often already well versed in sector dynamics from experience in offshore markets where key alternative sectors are more mature. The Australian alternatives landscape resembles other global markets for the most part, although is structurally less mature when compared to well-established markets such as the United Kingdom and the United States. In these regions, sectors such as BTR, co-living, life science and data centres are firmly established. For instance, BTR holds status as a core asset class in the US (known as multi-family), whereas in Australia BTR is still in its nascent stages and remains an alternative, far from rivaling core sectors in terms of scale at present. In the United States several major alternative transactions occurred despite global headwinds over the past 18 months. Notable transactions included Blackstone's USD 12.1 billion acquisition of American College Communities' 166-property portfolio, alongside significant purchases by Harrison Street and Brookfield which assisted in the tightening of the student housing yield spread in line with core multi family yields in several markets. Furthermore, Brookfield's acquisition of Compass Data Centres for

USD 5.5 billion demonstrates the depth of transactional activity in these more established alternatives markets. Overall, the US market has seen alternatives grow into a significant share of Commercial Real Estate (CRE) investment, totalling USD 289 billion in transaction volume from 2020 to 2023—a 79% increase. Over this period, 39% of capital raised has included alternatives as target sectors according to the Cushman & Wakefield US Research team. Within the UK, Australian-based Aware Super made an ~AUD 900 million investment into UK Build-to-Rent platform Get Living. This significant commitment highlights the strong appetite for exposure into growing living sectors in 2023, despite broader capital market turbulence. The UK living sector environment is highly comparable to the Australian market due to similar societal attitudes towards housing, albeit further along the maturity trajectory. In discussions with global capital, there is an expectation that elevated transaction volumes (by historical standards) across global alternative sectors will persist throughout 2024.

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CUSHMAN & WAKEFIELD

KEY TRANSACTIONS

Size AUD

Type

Name

Yield Buyer/Investor

Date

Direct

Healthscope Portfolio

1.2bn 5.3% HMC (HealthCo)

May-23

Southport Private Hospital

Direct

51.4m 5.6%

Dexus

Aug-23

HEALTHCARE Over the past five years the acquisition environment for Australian healthcare assets has been highly competitive with investors attracted to the sector’s strong covenants and the non-discretionary nature of underlying demand . While North-American REIT Northwest remains the largest owner of Australian healthcare real estate (approximately 13% of the investable universe), domestic investment managers (including Dexus, Barwon, Australian Unity, Centuria and HMC have dominated transaction volumes in recent years.

Epping Private Hospital & Medical Centre

KM Property Funds

Direct

76.0m 7.03%

Oct-23

Institutional capital continues to absorb prime assets, while secondary stock has appeal among syndicates and private investors. The sector has experienced some headwinds in 2023, including valuation pressure with capitalisation rates softening in response to the macroeconomic environment, including higher interest rates. In addition, an interesting dynamic facing the Australian healthcare sector are tightening margins across healthcare tenants / operators which poses risk to current rent levels in some instances.

It is likely that many secondary assets or those with weaker covenants will see continued valuation pressure in the first half of 2024, prompting investors to consider divesting lower grade assets. Prime hospitals are likely to remain tightly held. Cushman & Wakefield foresees an active 2024 for the healthcare sector with all major players expected to focus on development pipelines, as well as reassess their portfolios and capital requirements. Sector size estimate: AUD 40 billion Prime yields: 4.75%-6.00%

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CUSHMAN & WAKEFIELD

MANUFACTURED HOUSING ESTATES

Manufactured housing estates (MHE), also known as land lease communities (LLC) continued to gain traction amongst investors and consumers in 2023. While there is a significant amount of diversity in terms of stock quality, the sector is largely recognised for its relatively affordable nature. In 2023, the MHE sector witnessed its strongest year in terms of investment volumes, with the largest sale on record (Serenitas) to occur across the Australian market. Reflecting the sectors growing appeal, there has been a strong uptick in investor interest, which has been evident in the participation of two prominent ASX-listed managers. These transactions not only underscore the MHE model's stability but also signal its long-term return potential.

the business model, which presents opportunities for both strong development profits (20%+) and ensures a steady stream of rental income, while retaining ownership of the land. The investment case is strengthened by shorter development periods for manufactured houses (compared to urban living product) and minimal post-completion capital expenditures, given that residents own their homes. Looking ahead, we anticipate that yields will remain tight over the near term. This is due to scarcity of individual communities offered on market, coupled with elevated construction costs which have limited significant supply influxes. Portfolios of substantial scale are expected to retain strong pricing, further contributing to the persistence of low market yields. Sector size estimate: AUD 12 billion Prime yields: 4.75%-5.50%

KEY TRANSACTIONS

Size AUD

Buyer/ Investor

Type

Name

Yield

Date

Living Gems Portfolio Serenitas Portfolio

Direct

210m -

Stockland Jul-23

Mirvac & PEP

Platform

1.01bn

4.5%

Oct-23

Institutional investors are attracted to

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CUSHMAN & WAKEFIELD

AGED CARE

In the upcoming year, the increasingly dynamic Australian aged care sector is anticipated to see significant change and increased transactional activity. Operational challenges persisted throughout the aged care industry in 2023, weighing on capital markets activity. However, investors are continuing to re-strategise their approach to the sector noting the substantial increase in government funding outlined in the 2023–24 federal budget. With an increase in financial support of AUD 11.1 billion over four years, the sector is anticipated to see significant improvements geared towards enhancing the quality of care for residents. This financial support is likely to prompt increased market participation, with perception of the sector continuously improving. However, it is important to note that over the past year, transactions in the aged care sector, both in term of value and number were relatively low as the market adjusted to various structural and legislative changes.

A number of vacant-possession (VP) aged care homes have entered the market over the past 12-months with pricing positioned below replacement costs. While this factor has hindered the development site market, VP re-positionings can be viewed as a positive for market dynamics through moderating the net number of new beds entering the market and limiting negative supply driven impacts on pricing. Given the growing prevalence of homecare offerings for lower needs patients, there remains significant opportunity for investors to reposition VP homes to more acute product, reflective of evolving aged care requirements. Sector size estimate: AUD 40 billion Freehold yields: 6.00%-7.50% Going concern yields: 13.00%-15.00%

KEY TRANSACTIONS

Size AUD

Type

Name

Yield

Buyer/Investor

Date

Estia Health CPSM Care

Platform

838m -

Bain Capital

Aug-23

Regis Healthcare Limited

Platform

74.2m -

Nov-23

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KEY TRANSACTIONS

Size AUD

Buyer/ Investor

Type Name

Yield

Date

Fujitsu Western Sydney

Direct

4.5% UniSuper

Jul-23

-

DATA CENTRES

18 McKinnon Avenue

Titus Pty Ltd

Direct

4.7m

-

Jul-23

Demand for data centres in Australia remains strong, particularly in the primary markets of Sydney and Melbourne. CAGR is projected to reach approximately 12.5% between 2021 and 2026, indicating substantial sector growth over the medium term. Government initiatives, including those focused on digital trade, the digital economy, digital health and digital governance alongside the National Broadband Strategy have played a crucial role in fostering this growth. Additionally, the rise of artificial intelligence (AI) stands out as a key driver of demand in 2024, shifting from the previous dominance of cloud storage transition as the sector’s primary underlying demand driver. The adoption of AI technologies has surged within just a year and a half, emphasising the evolving landscape of data centre requirements.

It should be noted that direct operational data centre acquisition opportunities remain tightly held. Most investment into Australia’s data centre sector in the past five years has been accounted for via development led strategy, platform investment and a moderate level of legacy data centre acquisitions. Direct stabilised real estate transactions without operational exposure are expected to demonstrate a premium to comparable prime industrial yields, justified by the more specialised nature of data centre investments. Sector size estimate: AUD 25 billion Prime yield range: 4.75%- 5.50%

The evolving Australian data centre market has seen, robust growth persist across both primary and secondary markets, with operators overcoming challenges such as limited land availability and power resources. Australia presently stands as the third-largest data centre market in the APAC region, and substantial growth is forecast in Sydney, projecting a formidable 1GW market within the next 5-7 years.

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PURPOSE-BUILT STUDENT ACCOMMODATION

Figure 3: PBSA RENTAL GROWTH STUDIOS ONLY

$0 $100 $200 $300 $400 $500 $600 $700

The Australian purpose-built student accommodation (PBSA) sector consists of privately and centrally owned and managed off-campus student housing. Investor inquiry into the PBSA sector was elevated in 2023 driven by investors seeking higher yield spreads to financing costs (as opposed to core RE and BTR) and direct access to operational products. However, the PBSA market has remained tightly held in recent years limiting transactions volumes. The major transaction of the year was Blackstone's acquisition of Student One, marking Blackstone’s entry into the Australian PBSA market and highlighting the appeal of Australian PBSA fundamentals to major offshore institutions. PBSA rental rates remain at record highs with further growth expected in 2024 and 2025 as broader rental supply remains subdued. Despite yield de-compression in 2023, strong operational

performance and consequent NOI growth has limited impacts on capital values. In late 2023, the Australian government announced an intended reduction in student visa approvals to curb record levels of migration. However, this is anticipated to have limited effect on the PBSA sector given the government’s focus is intended to scrutinise potentially illegitimate private education providers as opposed to students at major universities –the primary occupants of the PBSA sector. Student housing industry bodies and universities have largely been supportive of the policy so far. Cushman & Wakefield expects PBSA to remain a highly favored alternative market in 2024 as tailwinds continue to solidify. Sector size estimate: AUD 20 billion

+4.0%

+20%

Semester 2 - 2022 Semester 2 - 2023 Semester 1 - 2024

Source: Cushman & Wakefield Alternatives Research *Studios only

KEY TRANSACTION

Size AUD

Buyer/ Investor

Type

Name

Yield

Date

Student One

Platform

530m ~6.3% Blackstone Sep-23

Prime yields: 4.75% - 6.25%

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RETIREMENT

In 2023, capital markets activity in the retirement sector was relatively subdued following a record year of investment in 2022. Although transaction volumes were low in 2023, investor inquiry has remained particularly elevated over the past 12-18 months. Structurally higher discount rates compared to core sectors continue to attract a variety of investors however operational complexities remain a hurdle for many groups assessing the sector. Despite these challenges, scale exposure to operational living assets is anticipated to be a key motivator for investors to consider senior living sectors going forward. On an operational level, the anticipated rebound in residential sales activity post cash rate stabilisation and/or compression in late 2024, coupled with limited new village supply, is expected to drive robust retirement unit price growth over the medium term. Consequently, this is projected to flow through to

deferred management fee (DMF) income streams, supporting elevated return levels across the sector. Over recent years, there has been significant institutional investment in the sector by groups such as Aware Super, EQT and Brookfield into major operational platforms. Additionally, several smaller operators have continued to evolve and expand through recapitalisations and accretive acquisitions. Looking ahead to 2024, investment activity is projected to increase as incumbent operators re-ignite strategies including portfolio refinement, development and expansion. Cushman & Wakefield believe the unique tailwinds which support the retirement living sector will continue to attract a wide range of global investors, driving an acceleration in capital markets activity in 2024.

Figure 4: RETIREMENT UNITS REQUIRED FROM 2022 TO 2061

0 100,000 200,000 300,000 400,000 500,000 600,000

495,400

6,300 p.a.

241,500

2022

2061

KEY TRANSACTIONS

Buyer/ Investor

Type

Name

Size AUD Yield

Date

Oak Tree Portfolio (30%) Ingenia Seniors Housing Portfolio*

Direct

Undisclosed

-

Aware Super Aug-23

Sector size estimate: AUD 35 billion Prime discount rates: 11.50% -13.00%

Eureka Group

Direct

44m

8.4%

Nov-23

*Note: Rental accommodation – not under Retirement Villages Act

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SELF STORAGE

There was considerable capital markets activity across the Australian self storage sector in 2023. Most notably, Abacus de-merged its self storage business into a separate REIT known as Abacus Storage King (ASX:ASK). ASK is now a fully integrated owner-operator of the Storage King Platform with a market capitalisation in excess of AUD 1 billion. Both major Australian REITs completed equity raises in 2023 with relatively strong pricing and limited discounting to book value given the challenging conditions for REITs in 2023. Capital markets activity across the REITs was supported by strong sector fundamentals with growth recorded in RevPAM and stable occupancy in recent reporting periods. Additionally, both REITs reported marginal capitalisation rate de compression earlier in 2023 with rates stabilising later in the year. This was reflective of trends across the broader direct market. There was a reasonable amount of liquidity in the direct market primarily driven by major owners continuing to consolidate their market share. Kennard’s, Australia's largest self storage real estate owner outside of the major REITs, completed several high-profile acquisitions (assets > AUD 10 million). Notably, private investor appetite has been robust outside of private markets driving substantial sales activity in assets < AUD 10 million with small self storage businesses often providing superior returns compared to other entry level real estate.

FIGURE 5: SELF STORAGE EQUIVALENT YIELD

2.50% 3.50% 4.50% 5.50% 6.50% 7.50% 8.50% 9.50%

2014 2015 2016 2017 2018 2019 2020 2021

2022 2023

Source: Cushman and Wakefield, 2024

KEY TRANSACTIONS

Type

Name

Size AUD Yield Buyer/ Investor

Date

Capital Raise Capital Raise

National Storage Expansion

National Storage REIT

325m -

Mar-23

Sector size estimate: AUD 14 billion Prime yield range: 5.50-6.00%

Storage King Spin-off Raise

225m -

Abacus

Jun-23

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CUSHMAN & WAKEFIELD

EDUCATION

The Australian education real estate sector is a broad encompassing sector which Cushman & Wakefield has come to define as including university buildings, on campus student housing, childcare assets and the currently limited local K-12 sector. This categorisation is largely reflective of mandates across global investors seeking to pool assets across these relatively fragmented and highly operator-owned sub-sectors – a trend not just limited to Australia. Prime education assets typically command competitive yields often in line with core sectors. This is driven by high levels of covenant security with blue-chip education providers typically commanding long lease terms and demonstrating high rates of renewal. Major transactions across the education space in 2023 were certainly reflective of this with both major direct transactions

commanding yields below 5%. Going forward, international schools circling the Australian market are likely to be the key driver for creating a K-12 investable product in Australia. Furthermore, on-campus concession style student housing opportunities are expected to be highly sought after across real estate investors expanding real asset mandates into the infrastructure market. Looking ahead to 2024, given the residential rental pressures being experienced across Australia we anticipate that there will be further on-campus student housing opportunities in partnership with universities as they continue to address student livability. This may widen the market outside of PBSA for offshore capital looking for student housing exposure and will also appeal to infrastructure investors given the nature of the on campus investment model.

KEY TRANSACTIONS

Size AUD

Type

Name

Yield Buyer/ Investor

Date

Explorers Early Learning

Direct

20.5m 4.6% Private Investor

Jun-23

UNSW Kensington

Keppel Corporation

Direct

80m 4.95%

Jul-23

K-12 Independent School Campus

Fund Through

Keppel Corporation

120m -

Oct-23

Sector size estimate: AUD 56 billion Prime yield range: 4.50%-6.00%

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CUSHMAN & WAKEFIELD

BUILD TO RENT The BTR sector is projected to play an integral role in shaping Australia's long term housing supply.

In 2024, Cushman & Wakefield expects capital to gravitate to operational platforms where stakeholders have key living sector operational expertise alongside proven track record in originating quality development opportunities in the local Australian market.

Although the sector has gained a significant amount of momentum in recent years, the BTR sector’s expansion has faced short term challenges. These challenges have largely stemmed from high construction and financing costs which have affected the feasibility of many projects and resulted in repeated delays in many instances. Despite these short-term hindrances, investment managers remain committed to the sector with several groups continuing to pursue first and additional round capital raises in 2023. There were also several new entrants to the Australian market in 2023 including Brookfield, Stockland andCharter Hall, demonstrating continued desire for exposure to the sector across institutional investors. Cushman & Wakefield remains confident in the sustained high levels of interest across the sector. To address the housing shortage, industry bodies have advocated for tangible incentives such as streamlined planning and expanded tax benefits to facilitate foreign institutional investment into BTR while simultaneously fostering the development of more viable and affordable housing projects.

Sector size estimate: AUD 5 billion* Prime yields: 4.25% - 4.75%

*Operational stock only

FIGURE 6: MAJOR BTR PLATFORMS: CAPITAL COMMITTED VS REMAINING CAPACITY

KEY TRANSACTIONS

Size AUD

Type

Name

Buyer/Investor

Date

Capital Raise

Scape BTR Fund Mirvac BTR Portfolio Lendlease MQT

APG & Bouwinvest

1.5bn*

May-23

45.8%

Re-Cap

1.8bn*

Mirvac

Jun-23

54.2%

Fund Through Fund Through

650m*

Daiwa House

Jul-23

Box Hill Golden Age BTR Site

360m*

Local

Oct-23

Capital Committed Estimated Capacity

*Total fund size

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CUSHMAN & WAKEFIELD

CO LIVING

In 2023, the Australian co-living sector witnessed an increase in capital markets activity following several years of subdued activity. The most significant deal across Australia’s co-living sector in 2023 was PGIM’s investment into TRIBE Hotel’s Australian co-living strategy. This collaboration is set to establish a portfolio of co-living assets valued at up to AUD 750 million. Operators originating from the hospitality industry have been most successful in terms of co-living platform creation to date. These groups often have strong lifestyle and community branding expertise alongside familiarity with management intensive accommodation operations. On a global stage, the co-living model has proven to be well-suited for cities grappling with extreme

affordability challenges. Within the Australian context, this has predominately been Sydney. While developers have gravitated to Melbourne for BTR projects due to the increased availability of sites for scale rental product, Sydney has remained the key focus for co living activity with the operational model typically most suited to cities with strong transient corporate workforces and exceptionally high rental rates. Cushman & Wakefield predicts that while high quality and well managed co-living portfolios are well placed for outperformance, there is a more limited growth trajectory for sector expansion compared to other living sectors. Co-living offerings are likely to remain a sub-set of broader product offerings across key hospitality and living sector players which can provide broader platform operational efficiencies. Sector size estimate: AUD 5 billion Prime yields 4.50%-6.00%

Figure 7: CO-LIVING AND BTR SUPPLY BY STATE OPERATIONAL AND PIPELINE

KEY TRANSACTIONS

Size AUD

Buyer/ Investor

Type

Name

Yield

Date

0 20 40 60 80

Capital Raise

Tribe Co-Living

750m*

-

PGIM Sep-23

60

17

Vision Land (Private)

30

UKO Surry Hills

14

Direct

15.5m -

Nov-23

NSW Number of assets

VIC

Co Living BTR

*Total fund size

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SPECIALIST DISABILITY ACCOMMODATION

Specialist Disability Accommodation (SDA) is a rapidly evolving alternative sector, straddling the realms of social infrastructure and living sector mandates. The SDA sector has continued to experience significant inquiry with investors attracted to the sector’s strong yield profile and government supported income stream. Furthermore, the sector has benefited from social impact investing mandates and Australia’s Authority (NDIA) maintain the SDA scheme as key priority area in policy evolution. Although the value proposition for the niche sector remains strong, challenges around market data transparency and uncertainties in projecting supply current housing undersupply thematic which has seen the National Disability Insurance

demand balance on a local basis has resulted in some caution across investors assessing current opportunities. However, capital raising is expected to re-gain momentum both as broader macroeconomic fundamentals improve and as fund managers continue to solidify their track record in the still relatively new sector. Over 2023 direct transactions were limited given the smaller scale of the sector and limited operational asset acquisition opportunities. The limited evidence in the market continues to suggest a significant yield spread between SDA assets and both core living and healthcare assets. Sector size estimate: AUD 4 billion Freehold Yields: 7.25-9.00% Going Concern Yields: 8.50-10.00%

KEY TRANSACTIONS

Size AUD

Type

Name

Yield

Buyer/Investor

Date

Three Asset Acquisition

Barwon Investment Partners

Direct

31.25m -

Aug-23

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CUSHMAN & WAKEFIELD

dwellings and 10,000 Affordable Housing dwellings over five years. This is complemented by the National Housing Accord (NHA), which is an agreement between the State and Federal Governments to increase the supply of housing, including by providing subsidies to collectively deliver a further 20,000 well located affordable dwellings. Both the HAFF and the NHA aim to provide consistent subsidies for 25 years to providers of subsidised housing. Funding approvals for Round 1 of the HAFF and the National Housing Accord are expected to be awarded in Q3 2024. As a result of diverse funding and operational models across the sector, there remains significant variability in achievable return rates. However, most investors are currently working

The feasibility of affordable housing investments are largely contingent on investor access to government initiatives including subsidy payments, concessional financing tools, various forms of tax relief, and planning incentives. Subsidies can come in various forms such as upfront capital grants, rental top ups, fixed availability payments, or discounted land leases. There are currently several policies across both state and federal levels that influence the viability of the affordable housing sector. At a national level, Housing Australia's Affordable Housing Bond Aggregator is one tool that offers concessional finance to enhance the feasibility of social and affordable housing development. With current approved loans totaling AUD 3.4 billion, the AHBA has been an essential aspect of fostering the recent growth of the affordable housing sector. Additionally, in late 2023, the Albanese Government passed legislation on the AUD 10 billion Housing Australia Future Fund (HAFF) which aims to fund 20,000 new Social Housing

AFFORDABLE HOUSING Australia’s current housing supply shortage has seen the issue of affordability rise on the political agenda. Simultaneously, many global institutional real estate investors are placing affordable housing at the forefront of their strategies. The broader Australian affordable housing sector includes several sub-types including key worker accommodation, social housing and other forms of accommodation specific to various social and health groups.

on models that provide core returns. Sector size estimate: AUD 15 billion Yield range: 4.00-7.00%

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LIFE SCIENCES

Cushman & Wakefield define ‘life sciences real estate’ as specialised assets where a significant portion of physical area is dedicated to life sciences research and development (R&D), typically classified as laboratories. Throughout 2023 the global life sciences real estate market remained affected by the decline in venture capital (VC) funding activity that begun in 2022 which weakened corporate tenant demand. However, from an occupier perspective, the niche Australian life sciences real estate sector remains largely dominated by government-affiliated research institutes alongside small companies supported by government programs – a significantly different landscape to the large corporate tenant markets of the US and UK. With Australia largely avoiding VC led market turbulence, limited transactional evidence in the life sciences sector continues to demonstrate robust metrics. A key example of this was Charter Hall

Social Infrastructure REIT’s (CQE) acquisition of a 49.9% interest in Westmead Innovation quarter on a capitalisation rate of 4.8%. Going forward, investment opportunities are likely to arise from two key channels. Firstly, development-led opportunities are expected to emerge through corporate growth in Australia’s life science sector. This includes the expansion of domestic companies alongside the entrance of offshore multi-nationals into the Australian market. Secondly, sale-and-leaseback from government-affiliated research institutes and corporates are likely to remain tightly held but an important channel for scale exposure. Cushman & Wakefield does not anticipate that the life science market in Australia will exhibit scalability in the same way as the US and UK markets with prime opportunities highly bespoke to specific operational outcomes. Sector size estimate: AUD 7 billion Prime yields: 5.00%-6.00%

KEY TRANSACTIONS

Size AUD

Type

Name

Yield Buyer/ Investor

Date

Innovation Quarter (49.9%) USyd Medical Foundation

CH Social Infrastructure (CQE)

Direct

66.9m 4.8%

Feb-23

Wentworth Capital

Partnership

500m -

Jul-23

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CUSHMAN & WAKEFIELD

AGRICULTURE

The outlook for Australia’s agricultural sector remains robust with strong domestic population growth, secure trade agreements and rising global food consumption key drivers of underlying demand. Covering 427 million hectares (equivalent to 55% of total land area) Australia’s agriculture sector plays a crucial role in meeting both domestic and international agricultural commodity requirements. While the ANREV Australian Farmland Index has remained largely flat over the past 24-months, more substantial growth is expected in 2024 with various bodies predicting a record or near record year for agricultural production. Furthermore, both domestic and international investor interest is predicted to remain strong. Land sovereignty or reclamation motivated purchases are expected to persist amongst domestic privates and high-net worth investors while offshore institutions are likely to seek opportunities aligned with key technological advancements, food security and supply chain thematics. While most major investment into the Australian agricultural sector in 2023 was through operating asset or platform exposure, leased agriculture remains a relevant component of the market which traditional real estate investors are increasingly considering. Although underlying demand drivers are considerably more diverse and complex across the agricultural sector compared to core real estate, lease terms are often not dissimilar to core sectors. Sector size estimate: AUD 9 billion* Prime yields: 5.00%-6.00%*

KEY TRANSACTIONS

Type

Name

Size AUD Yield

Buyer/Investor

Date

Kimberley Cattle Portfolio

Alberta Investment Management Corporation

Direct

300m -

Nov-23

Capital Raising

Riverina Almond Project

120m*

-

Costa Family

Dec-23

Australia New Zealand Landscapes and Forestry Fund (ANZLAFF)

Capital Raising

Australian and European institutional investors

450m*

-

Dec-23

*Capital raised, total fund size

*Institutional leased assets only

| AUSTRALIA ALTERNATIVES 20

CUSHMAN & WAKEFIELD

RENEWABLES

Australia has an ambitious target to increase the renewable sector’s share of electricity generation from 32% in 2022 to 82% in 2030. To achieve this ambitious target, ongoing investment into renewables projects is paramount. However, investment into renewable energy projects declined significantly in 2023 due to capital market turbulence and also sector specific challenges such as weakened Power Purchase Agreements (PPA) and some short term underperformance across solar and wind projects. The Clean Energy Council reported that 2023 the recorded since the council began tracking data in 2017. Despite this, several key deals occurred, driven by investor motivations such as ESG and offset mandates. An example of this is Ingka Group’s (IKEA’s parent company) acquisition of a 15% interest in TagEnergy’s Golden Plains wind farm as part of Ingka’s strategy to become climate positive by 2030 and net-zero by 2050. lowest year for large-scale (institutional) renewable energy generation investment

renewable energy strategy will be crucial to regaining momentum in investment activity as Australia competes for capital against countries with more mature renewable sectors. Cushman & Wakefield anticipates new-project commitment to be most active in the wind and clean fuel sectors. While there remains attractive development opportunities in the large-scale solar sector on a case-by-case basis, the rise of small-scale solar continues to affect large-scale solar investor demand. Additionally, Australia's green hydrogen and ammonia industry is rapidly growing, driven by abundant wind power resources and global demand for low-carbon fuels. With support from favorable policies and significant investments, Australia is poised to lead in clean fuel production and exportation. This industry offers significant economic opportunity, contributes to decarbonisation goals and positions Australia strategically in the Asia-Pacific region as a key renewable energy market. As investment and infrastructure continue to expand, early-stage opportunities are expected to rise in the next 24 months, driving Australia's transition to a sustainable, low-carbon future.

KEY TRANSACTIONS

Size AUD

Buyer/ Investor

Type

Name

Yield

Date

TagEnergy Golden Plains Wind Farm (15%)

Ingka Investments

Direct

300m -

Feb-23

Beijing Energy International Australia (BJEI)

Lightsource bp (5 projects)

Direct

813m -

Dec-23

Going forward, continuous and active government commitment to Australia’s

Sector size estimate: AUD 27 billion Prime discount rates: 7.50%-8.00%

| AUSTRALIA ALTERNATIVES 21

CUSHMAN & WAKEFIELD

OUTLOOK FOR 2024

Reliable and growing income remains paramount for investors, especially in the current economic environment where CPI is anticipated to remain high, and return expectations are elevated. As a result, investors are anticipated to seek assets that offer the potential for market rental growth that can be realised at regular intervals. Assets and sectors that provide this are increasingly being labelled as having ‘mark-to-market’ advantage. Alternative sectors that offer this advantage within their operational model include BTR, PBSA, co living and self storage. Furthermore, the financial sustainability of lease terms are increasingly being scrutinised and priced accordingly upon the acquisition of leased alternatives. Although demographic tailwinds are strong, sectors such as healthcare, childcare and education businesses have not been immune to operational margin pressures. The ability to drive rental growth upon review based off operating expectations is likely to be a key differentiator in prime versus secondary pricing across several alternative sectors. ACCESS TO REAL INCOME GROWTH TO REMAIN A KEY FOCUS

MOMENTUM TO REBUILD ACROSS SEVERAL MATURE SECTORS Over the past few years, a significant amount of attention has been placed on newer, development-led sectors including BTR, PBSA, Co-Living and Data Centres. However, inquiry is rising for sectors that offer immediate access to operational stock and consequently, income. This includes larger mature sectors such as retirement living and childcare alongside niche offerings that sit outside the core realm including emergency services, pathology, court houses and education assets. This momentum is expected to be been driven by several factors. Firstly, although some relief is expected across the construction industry in 2024, development timeframes remain extended and feasibilities weak in many instances – a hindrance for new entrants in particular. Secondly, sectors such as living require substantial scale to achieve management efficiencies while sectors such as data centres require highly specialised and capital-intensive management. These two factors present hurdles for new entrants and mid size investment managers. In turn, many mature sectors offer operational acquisition opportunities, often at lower price points which in turn are more suited to smaller managers and new entrants wanting exposure to Australian alternatives.

CAPITAL MARKETS ACTIVITY WILL BE SIGNIFICANT In 2024, Cushman & Wakefield project there will be significant capital markets activity within the alternatives sector, particularly in the second half of the year. Across most alternative sectors, assets remain tightly held by investment managers, limiting direct sales activity. Although, some portfolio optimisation is expected to occur in 2024 driving direct volumes, the bulk of capital flow is projected to be accounted for by re-capitalisations and new fundraising. Operators and owners are anticipated to seek capital to adjust their portfolios, reduce debt levels, fund development pipelines and selectively undertake acquisitions. Pleasingly, global capital is expected to gravitate to established operators boasting substantial scale, robust pipeline and strong management expertise via M&A, portfolio acquisitions or entering joint venture relationships. In addition, it is anticipated that the potential ongoing global convergence of infrastructure and real estate sectors into the broader category of 'real assets’ is a trend which may also contribute to capital allocation. Alternatives are well placed to benefit from this restructure given several key alternative sectors straddle the two universes of infrastructure and real estate. This style of asset is increasingly becoming regarded as ‘infra-lite’.

| AUSTRALIA ALTERNATIVES 22

CUSHMAN & WAKEFIELD

AUTHOR

GREER MCLEOD Senior Analyst, Research – Alternatives greer.mcleod@cushwake.com Mobile: +61 426 885 025

CUSHMAN & WAKEFIELD ALTERNATIVES TEAM The Alternatives team consists of 25 professionals located across Australia. The team is at the forefront of the alternative sector, comprising of a wide range of sectors including living sectors, healthcare, social infrastructure, data centres, agriculture and renewables. We are a team that are committed to providing new solutions and maximising opportunities in the evolving environment of alternative investments.

KEY CONTACTS

DAVID BRUCE-CLARKE Co-Head Alternatives ANZ Valuation & Advisory david.bruce-clarke@cushwake.com Mobile: +61 411 505 297 CAMERON DICKSON Senior Director Alternatives Valuation & Advisory cameron.dickson@cushwake.com Mobile: +61 433 563 838

DAVID CURTIS Co-Head Alternatives ANZ Capital Markets david.curtis@cushwake.com Mobile: +61 416 197 552

LOUISE BURKE Director

Alternatives Capital Markets louise.burke@cushwake.com Mobile: +61 408 510 161

Disclaimer The information in this material is general in nature and has been created by Cushman & Wakefield for information purposes only. It is only intended to be a complete description of the markets or developments to which it refers. The material uses information obtained from a variety of sources which Cushman & Wakefield believe to be reliable however, it has not verified all or any information and does not represent, warrant or guarantee its accuracy, adequacy or completeness. Any forecasts or other forward-looking statements contained in this material may involve significant elements of subjective judgement and assumptions as to future events which may or may not be correct and are beyond the control of Cushman & Wakefield. Cushman & Wakefield is not responsible for any loss suffered as a result of or in relation to the use of this material. To the extent permitted by law, Cushman & Wakefield excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from of in relation to the use of this material. All expressions of opinion included in this material are subject to change.

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