Sectors identified as niche two decades ago are the new essential property types.
Data centers attract the most attention for moving to essential quickly, but regardless of individual views on the fog of uncertainty, the industry shift into multiple niche sectors and subsectors is prominent enough to reduce allocations away from primary property types.
The current rise of formerly niche sectors and subsectors to essential property types is opening the door to new options that may be essential in the decades ahead.
Despite the wide variation in views on U.S. economic growth and market conditions ahead, the real estate industry agrees that, when it comes to sector allocation, what was once considered niche is now essential.
“Investors will continue to scavenge for opportunities in more niche property categories—seniors’ and student housing, medical office, public storage—as long as core categories seem overpriced.”
Today, it appears this 2006 Emerging Trends quote did not age well. The landscape has changed and, 20 years later, data centers dominate the property types to watch. Senior housing is now a major property type category in the NCREIF database, complete with its own subtypes. Self-storage holdings in the largest U.S. core funds exceed hotel market value. Medical office demand is more durable than that of traditional office, and student housing is a liquid, mature rental housing subsector.
For 2026, industry leaders place these sectors at the center of their real estate investment and development strategies. Newer asset types including marinas, outdoor storage, and schools are also emerging that confound some and excite others. What these former niche and new niche sectors have in common is that they provide or house essential services.
“Data center, digital infrastructure, you can call that real estate, but I would say those are true infrastructure investment . . . providing an essential service. Anything essential services, doesn’t matter if it’s a physical, social, or energy transition.”
Data centers
The digitization of our economy is housed in data centers. Capital is chasing data centers for returns, of course, but the subsector is critical infrastructure for technological expansion. Against this backdrop, data centers have rated the highest among all subsectors for investment and development prospects with ratings exceeding the five traditional property types.
“Tremendous amount of capital going into anything AI-related.”
Industry leaders investing in data centers are bullish on demand growth from cloud computing, enterprise data management, and the rapid adoption of generative AI tools. Development with a joint operating partner or hyperscale occupier is the most common approach for investing in the subsector. However, real estate firms that classify data centers as infrastructure often avoid development, instead choosing to approach the subsector as powered land sold to an operator or occupier.
The transaction market for data centers is in its initial stages with limited trades of stabilized properties. The maturation of the capital markets for data centers could bring more investor types to the subsector or shift investor attention toward the risks. Risk considerations for data centers include binary leasing risk, potential obsolescence risk from advancements in chip technology, and the immense power and water requirements necessary for development. Given the timeline for property development, data center construction often begins before power capacity is fully secured. The impacts of land, water, and power constraints on future growth remain uncertain.
“That great sucking sound? It’s data centers attracting so much capital.”
Senior housing
Industry leaders continue to increase exposure to this sector despite pandemic-era challenges. The sector was underbuilt before the pandemic, leading to tightening fundamentals today, and the demographic wave of boomers turning 80 will push demand far beyond the current capacity limits. Current and expected fundamentals lead investors to favor the sector, while the essential services aspect of senior housing and broad opportunities across markets anchor this property type to long-term portfolio considerations.
“Bullish on senior housing with fundamentals that will benefit from a demographic wave and very little supply.”
Expanding residential subsectors
In addition to senior housing, other residential subsectors are increasingly in favor.
Ten years ago, data centers and senior housing had no meaningful exposure in the largest U.S. core funds. This was also true for manufactured housing and single-family rentals. In 2025, single-family rentals have a larger share of core institutional investment, at 1.1 percent, than manufactured housing, data centers, and senior housing combined. Student housing is a relatively mature residential subsector with 10 years of core fund exposure at roughly 1 percent of holdings. The undersupplied housing market is creating new, essential opportunities in the residential space.
Self-storage
Industry leaders often view self-storage as a complement or extension of residential exposure because storage leases have conventionally been tied to homebuying. New uses for self-storage are challenging this conventional wisdom and will be covered further in Chapter 2. What is notable about self-storage is its rapid ascension from a nascent sector to the largest share of core fund exposures after the four major property types—apartment, industrial, office, and retail. Self-storage is lining up as the fifth major property type.
“Going long on medical office. Long-term leases with contractual rent bumps and the target markets are everywhere.”
Medical office
Industry leaders express favorable views on medical office due to the sector’s durability over the business cycle, especially relative to traditional offices. Experienced investors in the subsector also note the broad geographies available to target the sector given the essential services provided onsite. Locations require a population to serve and hospital system to generate demand for outpatient services. The opportunity to access smaller deal sizes is also attracting capital to the sector.
The new niche?
Innovative industry leaders are exploring new sectors for the next niche. Catering to the growth in high-net-worth individuals is one avenue, and the next big thing in this space is marinas. Marinas are limited in supply and increasingly in demand as more affluent individuals take the plunge into boat and yacht ownership. Real estate investors are clipping the coupon on slip rentals.
Essential services related to education are also gaining attention from investors. Industry leaders with exposure to student housing and/or infrastructure are turning to schools and related services, such as bus operators, as new investment opportunities. These moves are not yet widespread, but they’re a clear indication that the real estate industry is expanding its reach into what we may call niche today, may be essential tomorrow.
