Real estate investors are seeking a balance between caution and necessary risk-taking, according to a survey by Union Investment.

The German investment manager said property investors in Europe are attempting to solve the dilemma caused by high levels of available liquidity. Investors are actively managing liquidity and constantly balancing lower returns against higher risk.

Having surveyed 161 investors in Germany, France and the UK, Union Investment said the risk of misallocating capital is rising as new money “continues to pour in” and investing is a “balancing act”.

Options for investment in real estate in Europe are shrinking, the firm said.

“Huge investment pressure in the property markets leads to a higher risk of misallocating capital,” said Olaf Janßen, head of real estate research.

“Strategies must strike the right balance between accepting necessary risk in a zero-interest environment and exercising due care given the many threats.”

Investments offering lucrative returns remain few and far between in Europe, the firm said, adding that 52% of European real estate investors do not expect to meet their yield targets in the next three years due to high prices and correspondingly low returns.

Taking a five-year view, one in two of those polled are concerned that they will fail to achieve the expected return on investment.

“For many groups of investors, the scales are tipping in favour of cautious risk-taking,” said Janßen.

The survey was completed at the end of June, before the UK’s referendum on European Union membership.

With the index for the UK standing at 64.3 points, the mood among British investors even before the Brexit decision was at its lowest since 2012.

For the first time since 2010, the climate index in the UK has fallen below that of Germany (67.5) and France (67).

“Overall, investors are losing confidence in their respective property markets,” said Olaf Janßen.

“Sentiment is being hit by numerous uncertainties, which are increasingly driven by developments in the capital markets.”

The next six months will, he said, show whether Germany’s climate index will be influenced by special effects and decline further, reaching the low level seen in France and the UK.

An increasing focus on returns is a consistent feature across all three survey regions.

In Germany, returns and security continue to be equally weighted at around 40% each. The focus on returns is most marked in the UK, with 84% of British investors looking primarily at returns when making their investment decisions.

In France, 56% of those surveyed consider returns to be the crucial element when weighing up an investment.

The majority of investors surveyed (56%) are not prepared to increase their risk exposure, and accept that they will not meet their self-imposed yield targets or those defined by their clients.

An investment strategy based on “same risk – lower return” is being pursued by 56% of investors in Germany, 52% in France and 60% in the UK.

“Although there has been a significant rise in the focus on returns, this has not translated into much action yet,” said Olaf Janßen.

“There is still no sign of a general shift towards higher-risk investments.”