German institutional investors bringing property investment in-house

GERMANY - More than 70% of German institutional investors are now handling their retail property asset management in-house, and Ernst & Young believes this figure is set to increase.

According to a recent survey by the consultancy, another 25% of investors have outsourced at least part of their real estate asset management.

Only 5% of respondents have put their entire property portfolios in the hands of external providers.

For Ernst & Young, the reason for this "inversion trend" is the realisation that investors have to stay in close contact with tenants, and that it is difficult to keep track of portfolio development opportunities with outsourcing.

For its 'Real Estate Asset Management - Retail Property' survey, Ernst & Young canvassed more than 40 companies operating on the German market from the following sectors: mutual funds/KAGs, insurers, institutional funds, banks, private investors/family offices, international investors/project developers, private equity funds, corporates, REITS and public authorities.

Asked whether the trend to outsourcing asset management services would increase, 43% agreed, 38% said it would stay the same, and 19% disagreed.

According to Ernst & Young, specialist areas might be outsourced in future, while the universal "vendor-tray" concepts of larger providers, covering all types of property and all regions, will have a "difficult time" asserting their position in the market.

Its report added: "Qualified specialists with long track records have significantly better competitive chances."

The survey also found that 45% of respondents believe asset management mergers are set to increase, while another 45% thinks the number of will stay the same, and 10% think it will decrease.

Asked by what criteria they chose external managers for their property portfolios, the majority of investors named quality of service as top of the list, followed by flexibility and fee structure.

More than 60% said the demand for co-investments by asset managers to strengthen the "alignment of interest" would increase.