German institutions prefer indirect investing in commercial real estate, according to a survey.

Berlin-based Rueckerconsult’s study of 100 institutional investors found a preference for indirect investments, with 28% of respondents looking to increase their share on indirect holdings.

Only 19% are looking to increase their share, while 26% of respondents are planning to invest exclusively in indirect investments.

Thomas Rücker, managing director at Rueckerconsult, said: “Real estate special funds are the number one investment vehicle, but German investors prefer to stick together. As the need for security remains high, expected returns are low.”

Rueckerconsult said most special fund investors preferred a minimum of 2-10 co-investors, with the majority preferring between one and three.

“They also have specific ideas about what type of co-investors they want,” Rücker said.

The survey found 45% of respondents could imagine investing with German pension funds, retirement funds or other pension funds, while 20% expect to partner German insurance companies.

“They were especially averse to non-German investors, particularly international private equity funds and international government funds,” Rücker said.

Institutions “do not tend to stray from the beaten track”, despite the pressure to invest, according to the firm.

The survey found little interest in alternative investments, such as real estate bonds, convertible bonds or credit funds.

Only 14% said they would include bonds of real estate companies in their portfolio, while only 8% would be willing to buy convertible bonds of real estate companies.

Respondents’ focus is still largely on major German cities – particularly for investment in the office sectors.

Most investors – around 74% of those surveyed – continue to focus on office and retail property.

Around two-thirds of respondents target an average rental return of 4-5%.

Only 7% target returns above 6%.