An Alternative Approach to Core

Alternative property sectors can deliver a more resilient core real estate portfolio than the traditional focus on office, retail, multifamily and industrial, provided investors select sectors with durable demand and specialist operating expertise.

• Aging demographics support senior housing and medical office: the US population is growing by 0 to 0.5 percent annually, while the 80-plus population is growing by approximately 4 percent per year.
• Core stability is primarily an income question: since 1978, more than 90 percent of the NCREIF Property Index's total unlevered return came from income and less than 10 percent from appreciation.
• Better industry data from NCREIF, Altus and other sources, combined with traditional portfolios' difficulty meeting core income and total-return objectives, is increasing institutional acceptance of alternative sectors.
• Operational intensity does not automatically mean higher risk; Kayne argues that deep sector knowledge, close operator alignment and selectivity can mitigate risks such as obsolescence, which is affecting large parts of the office market.
• Senior housing ranked second and medical office third among 27 property subsectors in PwC and the Urban Land Institute's Emerging Trends in Real Estate 2026 survey, while the expected shift toward alternatives may take 10 to 20 years.

Takeaway: Investors should treat alternative real estate as a selective, bottom-up core allocation rather than a broad beta exposure, assessing each sector's demand drivers, income profile, operating expertise and obsolescence risk; redemption queues at many ODCE funds may slow the reallocation.