Study: Growth of Alternative CRE Assets in 2025
Alternative commercial real estate (CRE) assets are growing faster than ever in 2025, driven by changing demographics, advancing tech, and shifting investment strategies. These assets - like data centers, senior living, and student housing - are reshaping portfolios with higher returns and resilience compared to office and retail spaces.
Key Takeaways:
- Market Growth: Alternative CRE assets grew from $67B in 2000 to over $600B by 2024, with an annualized return of 11.6% vs. 6.2% for traditional CRE.
- Drivers:
- Tech Demand: AI and cloud services are fueling data center expansion, projected to exceed $300B by 2030.
- Demographics: Aging populations and lifestyle shifts are boosting senior living and student housing demand.
- Shifting Portfolios: Investors are allocating more to alternatives, now over 50% of REIT holdings, with potential to reach 70% by 2034.
- Performance:
- Data centers: Low 2% vacancy rates; energy needs doubling by 2030.
- Senior living: 92.3% occupancy amid supply shortages.
- Student housing: Stable growth with rising college enrollment.
Why It Matters:
With long-term societal trends shaping demand, alternative CRE assets are becoming essential for investors seeking stability and higher returns in a changing market.
Alternative: On Deploying Capital in Today’s Real Estate Market
What's Driving Growth in 2025
Three key forces are fueling the growing demand for alternative commercial real estate (CRE) assets in 2025.
Population and Social Changes
The aging population in the U.S. is driving a surge in demand for senior housing and healthcare facilities. By 2030, all 73 million Baby Boomers will be 65 or older, and by 2040, the number of people aged 85+ will have doubled within two decades. This demographic shift is reshaping investment trends across the real estate sector.
"The peak demand for Boomers in the industry is roughly 2025-2030 - still likely to have demand far outpace supply, particularly of the right products", explains Nancy Swanger, Founding Director of the Granger Cobb Institute for Senior Living at Washington State University.
Attitudes toward senior living are also shifting. Seniors are increasingly choosing independent living communities earlier in life, expanding the market beyond traditional care facilities.
Household dynamics are evolving as well. Single-person households now account for 28% of all households, while one in five Americans lives in multigenerational homes. These trends are boosting demand for micro-units and properties with dual master suites - asset types that were rare a decade ago.
At the same time, millennials now make up over 50% of U.S. homebuyers and are favoring suburban areas over urban centers. With remote work enabling more flexibility, this preference is fueling demand in secondary and tertiary markets, where alternative CRE assets often outperform traditional office or retail properties.
Technology Growth
As demographic changes reshape the real estate landscape, technological advancements are transforming the types of properties needed. The rise of artificial intelligence (AI) is driving unprecedented shifts in demand for infrastructure. By 2030, AI workloads are expected to account for 70% of total data center demand, requiring a complete rethinking of how these facilities are designed and operated.
Data center energy consumption is projected to nearly double, increasing from 536 terawatt-hours in 2025 to about 1,065 TWh by 2030. This isn’t just about adding more servers - AI's computational needs demand high-density GPU clusters and advanced cooling systems, which traditional data centers simply can’t support.
For example, liquid cooling technology is becoming essential. The global market for data center liquid cooling is forecasted to grow from $4.9 billion in 2024 to $21.3 billion by 2030, with a compound annual growth rate (CAGR) of 27.6%. In the U.S., this market is expected to grow at a CAGR of 17.1% between 2025 and 2033.
"This is a long-term trend", says Giovanni Albertazzi, CEO of Vertiv.
The life sciences sector is also experiencing technology-driven growth. AI-powered tools for drug discovery, clinical trial optimization, and personalized care are increasing the need for specialized facilities. In 2024, research and development property sales in the life sciences sector reached $7.2 billion, a 33% year-over-year increase.
Additionally, hyperscalers are pre-leasing significant data center capacity and integrating AI for energy efficiency and predictive maintenance. This creates a feedback loop where technological advancements drive demand for more sophisticated real estate, which in turn supports further innovation.
Market Changes and Portfolio Needs
Shifts in market conditions and investment strategies are also influencing the growth of alternative CRE assets. The post-pandemic investment environment has fundamentally changed how institutional investors approach portfolio construction. Traditional 60/40 equity/bond portfolios are underperforming in today’s market, pushing investors toward real estate for diversification.
With property prices down 22% from their peak, investors with available capital are finding attractive opportunities. Higher interest rates and stricter lending standards are also opening doors to acquire distressed properties, particularly in sectors like office and retail.
Investors are increasingly favoring alternative assets that show resilience to interest rate fluctuations and offer strong performance metrics. Diversification strategies are becoming more sophisticated, with some investors adopting 40/30/30 allocations for stocks, bonds, and alternative assets. This shift has improved Sharpe ratios from 0.55 to 0.75 between 1989 and early 2023.
The next generation of real estate leaders is accelerating these changes. They are more open to unconventional strategies and view alternative property types as essential holdings rather than niche investments. This generational shift is breaking down traditional barriers to alternative asset adoption.
Macroeconomic factors are also playing a role. Real estate tends to perform well during inflationary periods, with returns averaging 11.0% during high inflation compared to 9.9% during low inflation. As economic uncertainty continues, these trends position alternative CRE assets for steady growth into 2025 and beyond.
Performance Data for Top Alternative CRE Asset Classes
In 2025, three alternative commercial real estate (CRE) sectors - data centers, life sciences, and housing - are delivering strong returns despite economic challenges. These performance trends highlight a growing focus on CRE assets that align with evolving societal and technological demands.
Data Centers and Digital Infrastructure
Data centers are leading the charge in alternative CRE performance. By 2030, the U.S. data center market is expected to hit $308.83 billion, with an annual growth rate of 6.78%. This sector's growth is reshaping investment portfolios and creating new opportunities.
In 2024, North America's data center supply expanded by 34% year-over-year, reaching nearly 7,000 MW. Demand has driven vacancy rates to an all-time low of 2%, putting property owners in a favorable position. Meanwhile, global data center pricing rose 3.3% year-over-year, averaging $217.30 per kilowatt (kW) per month. Net absorption in the top four North American markets surged by 101%, totaling 1,668.5 MW .
Capital spending in this sector is also on the rise, with a 35% year-over-year increase projected for 2025, bringing total expenditures to $363 billion.
"Our customers who represent a broad spectrum of industries told us they have made no significant adjustment to their digital infrastructure strategy beyond some pre-purchases of equipment. These customers are collectively signaling firm demand, which supports our operating plan despite the economic uncertainty", says Adaire Fox-Martin, president and CEO of Equinix.
Performance varies across regions. London rental rates range from $180 to $215 per kW per month, while Singapore commands higher prices, between $310 and $470 per kW. Listed infrastructure continues to outperform broader public equities, while private infrastructure investments show steady returns of 8%-11%.
As data centers ride the wave of digital demand, life sciences properties are navigating a more complicated market to position themselves for future growth.
Life Sciences and Health Care Real Estate
The life sciences sector presents a mixed picture in 2025. Vacancy rates climbed to 20.5% in Q4 2024, yet the long-term outlook remains promising. Over the next decade, fifteen major pharmaceutical companies plan to invest more than $270 billion in U.S. biomanufacturing and R&D, signaling a robust pipeline of future demand .
Transaction activity has become more cautious, with smaller deals making up 76% of transactions in Q1 2025. Rent growth has slowed to 3% year-over-year, but rents are still 22% higher than 2022 levels.
Geographically, performance varies. Oversupply challenges are evident in Boston, the San Francisco Bay Area, and San Diego, while markets like Greater Washington D.C., New Jersey, and Raleigh-Durham show greater stability. Los Angeles stands out with its low availability rate and rising rents due to limited expansion opportunities.
"Without a significant surge in demand, we expect prime lab assets to outperform in this oversupplied market", comments Mark Bruso, Director, Boston and National Life Sciences Research at JLL.
The construction pipeline is shrinking, with only 2 million square feet slated for delivery beyond 2025, compared to the 16 million square feet currently under construction. To balance the market, the U.S. lab sector would need 20 to 25 million square feet of net absorption or supply reductions.
While life sciences face a period of recalibration, housing sectors like student housing and senior living are thriving, driven by demographic trends.
Student Housing and Senior Living
Both student housing and senior living are benefiting from demographic shifts that support steady performance. Senior housing, for example, has reached a 14-year low in supply, while demand continues to rise, creating favorable market conditions.
Active adult rental communities have achieved 92.3% occupancy as of Q2 2025, reflecting Baby Boomers' preference for independent living with a focus on wellness.
"Baby Boomers appear to prioritize mental, physical, and social wellness, and they're choosing to move into independent living and active adult communities because that lifestyle is baked into the experience", notes Caroline Clapp, senior principal at NIC.
Student housing also remains strong, driven by steady college enrollment growth. Enrollment is expected to rise by 9% from 2021 to 2031, reaching 16.8 million students. The increase in international students adds another layer of demand.
To meet the rising need for senior housing, the market will require more than 42,000 new units annually. Investment activity is focused on stabilized or near-stabilized properties in major metro areas, with growing interest in secondary cities.
"We see the opportunity to invest in core assets with the potential for value-add-like returns. Drivers of this will be continued margin recovery, increasing occupancies and potential for outsized rent growth", says Nati Kiferbaum, senior vice president & head of investment product strategy for Inland Private Capital Corp.
These three asset classes - data centers, life sciences, and housing - are drawing increasing attention from investors. Each offers a unique balance of risks and rewards, driven by structural demand factors that traditional office and retail properties often lack.
Alternative vs. Traditional CRE Comparison
The rise of alternative assets highlights a noticeable shift in how investors approach their portfolios. Over the past few decades, this sector has grown significantly, signaling a broader transformation in real estate investment strategies.
Real Estate Investment Trusts (REITs) have been at the forefront of this evolution, increasing their stake in alternative assets from 26% in 2000 to over 50% by 2024. Looking ahead, Deloitte projects that alternative assets could account for nearly 70% of industry portfolios by 2034, up from 40% today.
In contrast, traditional real estate investments - focused on office buildings, apartments, retail spaces, and industrial properties - are grappling with challenges. For instance, the national office vacancy rate reached a record 20.4% in Q1 2025. Meanwhile, alternative real estate sectors, such as self-storage, senior housing, medical outpatient buildings, data centers, cold storage, and student housing, have demonstrated stronger performance compared to traditional markets.
"The greatest challenges today are the unknowns, whether they be economically or legislatively driven... Those unknowns inject more conservatism, resulting in a wait-and-see mentality, ultimately stalling decision-making." – Kurt Stuart, co-head of Commercial Term Lending at Chase
This shift in the real estate landscape calls for a closer examination of how these two asset classes compare in terms of performance.
Performance Metrics Comparison
Over the last ten years, alternative assets have consistently outperformed traditional commercial real estate (CRE). They delivered an impressive 11.6% annualized return, compared to 6.2% for traditional real estate. Beyond higher returns, alternative assets have shown greater resilience during economic downturns, standing out as a potential safe haven in uncertain times. For example, during the 2020–2023 period, alternative sectors saw $289 billion in transaction volume, a 79% increase, with 39% of capital raised going directly to these sectors.
| Metric | Alternative CRE | Traditional CRE |
|---|---|---|
| Annualized Returns (Last Decade) | 11.6% | 6.2% |
| Market Size Growth (2000-2024) | $67B to $600B+ | Slower growth |
| Typical Occupancy Rates | 90%+ nationally | Office: 79.6% (Q1 2025) |
| Economic Downturn Performance | Outperformed in last 3 downturns | More volatile |
| Transaction Volume Growth (2020-2023) | 79% increase ($289B) | Mixed performance |
| Primary Return Drivers | Income yield, operational improvement, demographic trends | Income yield, capital appreciation |
The risk-return profiles of these asset classes reveal notable differences. Portfolios that allocate more heavily to alternative real estate tend to achieve better risk-adjusted returns, effectively pushing the efficient frontier outward. However, alternative assets come with higher volatility and operational complexity, requiring a deeper level of expertise. Their lower correlation with public markets makes them attractive for diversification, as they’re influenced by unique factors compared to public equities. Moreover, assets like aged care homes, data centers, and self-storage facilities often have lifespans exceeding 20 years, offering stable income streams and diversification benefits.
Another key distinction lies in investment horizons. Traditional CRE often follows shorter-term cycles tied to economic fluctuations. In contrast, alternative assets are aligned with long-term societal changes, such as aging populations, advancements in technology, and the growing demand for healthcare. These structural trends create more predictable demand patterns, making alternative assets particularly appealing during uncertain times. This focus on long-term shifts explains why alternatives are becoming an increasingly important part of modern investment portfolios.
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Tools and Methods for Managing Alternative CRE
Handling alternative commercial real estate (CRE) assets demands cutting-edge technology tailored to their unique challenges. Unlike traditional office or retail properties, assets like data centers, life sciences facilities, and senior living communities require advanced analytics far beyond what basic spreadsheets or manual processes can handle. This complexity has driven significant investment in real estate technology.
The industry is responding to this need, with 81% of surveyed CRE leaders citing data and technology as their top spending priority for 2025. Modern platforms now leverage AI to evaluate property performance, track market trends, and assess borrower creditworthiness with a level of precision that helps mitigate default risks. Digital data collection has also revolutionized property evaluations, delivering real-time insights into vacancy rates, rent growth, and property conditions.
Recent advancements highlight the transformative potential of these tools. For example, in 2023, AI-driven recommendations significantly increased online engagement. PropTech innovations - like smart sensors, drones, AI-powered platforms, and tokenization - are streamlining real estate operations. This sector is projected to surpass $130 billion by 2033, growing at an annual rate of 16%.
Lenders are also adopting stress-testing models to simulate economic scenarios and gauge their impact on alternative CRE portfolios. Tools like geospatial analysis are enhancing risk evaluations by overlaying data on crime rates, climate risks, and infrastructure developments directly onto property maps. Additionally, machine learning is improving property valuation accuracy by up to 40%, according to the Journal of Property Investment & Finance. Cloud-based platforms are integrating vast datasets into interactive dashboards, while AI tools simplify decision-making by analyzing lengthy reports and creating detailed investment summaries.
Using CoreCast for Alternative CRE Management
To address the complexities of alternative CRE, specialized platforms like CoreCast have emerged. CoreCast is an end-to-end real estate intelligence platform designed to simplify the management of diverse asset classes. By consolidating multiple tools into a single solution, it enables professionals to underwrite assets, assess risks, and track deals throughout the entire pipeline. Its integrated mapping features provide a comprehensive view of properties and their competitive landscapes - critical for alternative assets where location needs vary widely. For instance, data centers require proximity to fiber infrastructure, while senior living facilities benefit from nearby healthcare services and transportation options.
CoreCast also excels in portfolio analysis, offering tools to monitor performance across various asset types. Users can create custom summaries that evaluate past performance while forecasting future potential, helping clarify how alternative assets contribute to overall returns. The platform’s pipeline tracker ensures professionals stay organized during complex, multi-stage transactions that often involve extended due diligence.
Stakeholder communication is another area where CoreCast shines. Its dedicated stakeholder center allows users to craft branded reports tailored for investors, lenders, and partners. By integrating financial and operational data, it automates quarterly reporting and monitors key performance metrics, reducing manual effort and minimizing errors.
What sets CoreCast apart is its unified approach. Instead of juggling multiple disconnected systems, users can access all necessary tools in one platform. Looking ahead, CoreCast plans to introduce enhancements like AI-driven automation, construction management tools, and advanced reporting features. As the alternative CRE sector evolves, having a platform that adapts to new asset classes and analytical needs is a critical advantage.
Conclusion: Alternative CRE Outlook for 2025
The alternative commercial real estate (CRE) market in 2025 is poised for substantial growth, fueled by demographic shifts and advancing technology. For instance, the aging population is driving long-term demand for aged care and supported living facilities, with strong growth expected through 2050. At the same time, the digital era continues to expand, with data centers requiring an estimated $250 to $300 billion in investment by 2030 to keep up with skyrocketing demand.
Energy consumption is also playing a pivotal role in shaping the market. By 2026, data centers worldwide are projected to consume 1,000 TWh of electricity annually - equivalent to the entire energy consumption of Japan. This reflects the rapid pace of digitalization, with technologies like AI, cloud computing, and social media driving critical shortages in data storage infrastructure.
The build-to-rent sector is another area of significant momentum. Since 2017, over 12,000 rental homes have been constructed across the U.S., and a record-breaking 34,000 units were delivered in 2024 alone. This sector addresses a pressing affordability issue, as renting remains about 27% cheaper than homeownership in the 50 largest U.S. metros. Student housing also continues to be a robust growth area, meeting the needs of a steady demand base.
"Alternative real estate assets offer potential for investors. Filling the growing gap between supply and demand in the technology sector, multi-family living and student accommodation, aged care, and life sciences, alternative real estate assets offer potential for diversified long-term growth strategies." - Ansarada
Technology adoption is becoming a cornerstone of success in this evolving market. With 81% of CRE leaders prioritizing investments in data and technology by 2025, traditional management methods are being replaced by smarter, more connected solutions. Smart buildings, equipped with advanced interconnectivity, are increasingly the norm, though they require sophisticated monitoring systems to optimize operations and enhance security.
On the financing front, conditions are improving. While half of survey respondents in 2024 expected financing to be costly and difficult to secure, the outlook for 2025 is much brighter. This year, 68% of respondents anticipate lower financing costs, and 69% expect easier access to capital. These shifts create a favorable environment for technology-driven management solutions.
Enter CoreCast, a platform designed to tackle the complexities of alternative CRE. By integrating advanced analytics, CoreCast helps manage diverse asset classes, track deal pipelines, and analyze competitive landscapes - all in one place. This unified approach equips investors to navigate the unique challenges posed by alternative properties, offering a clear competitive edge.
Ultimately, success in alternative CRE will depend on blending strategic investments with cutting-edge technology. Sectors like aging care, digital infrastructure, and multi-family housing show resilience by addressing core market needs. Investors who leverage deep market insights and advanced tools are well-positioned to seize the growth opportunities emerging in this dynamic and evolving landscape.
FAQs
What is driving the growth of alternative commercial real estate assets in 2025?
The rise of alternative commercial real estate (CRE) assets in 2025 is being driven by several powerful trends. Key among them are technological shifts, like digitization and automation, alongside changing demographic patterns and housing supply shortages across the U.S. Together, these factors are reshaping the landscape of CRE investments.
On top of that, broader economic forces - such as rising interest rates, inflation, and shifting policy regulations - are influencing how investors approach the market. There's also a growing emphasis on decarbonization and sustainability, which is steering development priorities toward greener and more efficient projects. Meanwhile, evolving consumer and business demands are fueling interest in creative and non-traditional asset types. All of these factors are opening new doors for investors looking to diversify and navigate the ever-changing market.
How do alternative commercial real estate assets like data centers and senior living facilities perform compared to traditional investments?
Alternative Commercial Real Estate (CRE) Assets
Data centers and senior living facilities are shaping up to be standout performers in the commercial real estate market by 2025. Their rise is tied to growing demand, advancements in technology, and shifting demographic patterns.
Data centers are thriving as businesses ramp up their digital capabilities to handle increasing connectivity and storage demands. On the other hand, senior living facilities are gaining traction, supported by the aging U.S. population. These facilities offer a sense of stability and the ability to weather economic fluctuations. For investors aiming for higher returns and sustainable growth, these alternative CRE assets present compelling opportunities.
How is technology shaping the management and growth of alternative commercial real estate assets, and what advancements can we expect by 2030?
Technology is reshaping how alternative commercial real estate (CRE) assets are managed and perform. Tools like AI, predictive analytics, IoT, and virtual reality are empowering real estate professionals with smarter decision-making, proactive maintenance strategies, and improved tenant experiences. By 2025, these technologies are already delivering real-time insights and streamlining operations across entire portfolios.
Looking further ahead to 2030, AI-driven analytics and automation are poised to revolutionize every corner of the CRE landscape. From more accurate market forecasting to optimizing portfolio performance, these advancements could drive efficiency gains and unlock billions in potential value. As these technologies advance, they’ll continue to reshape how investments are managed and grown in this ever-evolving sector.