Wary investors seek solid foundations in UK property post-Brexit

* Investors buy student flats, hotels over offices, retail

* Alternatives preferred for long leases, steady tenants

* July returns on alternatives fall less than office, retail

* Brexit hits office deal values, alternatives steady

By Esha Vaish

Aug 31 (Reuters) - Property investors are buying intostudent flats, health centres and care homes, favouring theirlong leases and steady tenants over retail and offices whichhave been hit by Britain's vote to quit the European Union.

Buying of so-called alternative or specialist property haspicked up since June's referendum knocked the wider real estatemarket, according to data from property consultants.

Alternatives accounted for 16 percent of total UK propertyinvestment in July, up from 13 percent in the second quarter,commercial property broker Lambert Smith Hampton said.

"People have said, post-Brexit, that they don't want to takethe risk profile that they did beforehand," Shaun Roy, head ofspecialist investment at property broker Knight Frank, said.

"That has now led them to buy specialist property because ittends to be less risky, more defensive. Over the last six toeight weeks, we've never been busier."

Property was among the sectors hit hardest by Brexit. Withinweeks of the referendum, seven commercial property funds worth acollective 18 billion pounds ($24 billion) froze trading afterpanicked retail investors asked for their money back.

Fears that firms might move jobs to Europe, particularly infinancial services, and return leased office space, along withconcerns of a slowdown in High Street trading has spurred investors to seek out long leases and public sector tenants.

Since the vote, asset manager Schroders hascompleted a hospital portfolio deal that it hopes will generatereturns of around 6 percent, thanks to the 25-year leases agreedwith a local health authority.

Duncan Owen, head of real estate at Schroders, said itsalternative fund had seen higher inflows than any of its otherssince the Brexit vote and it's value is up by about 25 percent.

RUNNING FOR GOLD

While traditional property investments have returns of 7percent to 10 percent before leverage, higher than the averageacross alternative sectors, falling capital values on office andretail in recent months may mean average returns now match, oreven fall below, alternative sectors.

Office and retail total returns fell 3.7 percent and 3.2percent respectively in July, while returns from "other" assets-- including hotels, leisure centres, hospitals and othernon-traditional property classes -- were down only 1.4 percent,according to property consultant CBRE Group Inc.

Total return is often used to compare different assets as ittakes in to account their value as well as rental returns.

Traditional property assets saw no rental growth during themonth, while rents for "other" assets rose, CBRE said.

And the first post-Brexit updates from property companiesalso indicate greater caution in traditional property.

Derwent London Plc, which has an office-focusedcentral London property portfolio worth about 5.2 billionpounds, reduced its rental growth expectations and cut the valueof two new property developments.

By contrast, Primary Health Properties (PHP) Plc,which leases properties to general practitioners and the UK'sNational Health Service, said transactions in the primary carereal estate market had continued uninterrupted by the EU vote.

Ellie Jukes, property strategist at Legal & General GroupPlc's LGIM Real Assets, said that outperformance thisyear and next would come from the "bond-like income streams"associated with alternative property, which have strongcovenants and indexation.

This category also includes hotels and in July, Legal &General bought a Premier Inn hotel in London on a 25-year lease.

Mike Sales, head of TH Real Estate, which manages propertyassets worth more than $96 billion, said student housing, hotelsand health centres had become "more institutional, liquidsectors" due to their less cyclical nature and long leases.

Real estate lawyers, brokers and investors told Reuters thatthey had seen deals where the value of office and retailproperty transactions has fallen by up to 10 percent since theBrexit vote, while alternative property has remained stable.

"It's a little bit like investors running to gold when theydon't know what else to do," said Owen at Schroders. ($1 = 0.7567 pounds)

(Editing by Alexander Smith)