GERMANY – Institutional investors are looking for real estate returns in more opportunistic areas, but they preferred direct investments while regulatory uncertainties prevailed, according to a survey by Schroder Property.

The survey of more than 120 German institutional investors, including Pensionskassen and Versorgungswerke, also found that the heated debate surrounding the implementation of the Alternative Investment Fund Managers Directive (AIFMD) scared institutions off funds.

More than 60% of respondents said they wanted to focus on direct investments in 2013, a 20% year-on-year increase.

The share of those wanting to invest in a Spezialfonds shrank by 4% to 33%, while only 24% of respondents plan further investments in German open-ended funds (GOEFs) compared with 45% already invested in 2012.

Michael Ruhl, managing director at Schroder Property KAG, said: "The trust in Spezialfonds has been damaged by the discussion around the AIFM implementation."

While it is certain now that Spezialfonds will be left unaltered by the Kapitalanlagegesetzbuch (KAGB) implementing the AIFMD, the bill has yet to pass parliament, and it includes some restrictions for GOEFs.

In the survey, Schroder Property also found a higher risk appetite among German institutions as core and core-plus real estate is currently difficult to find, especially in the euro-zone, where 60% of respondents wish to focus.

Already in 2012, almost twice as many institutions (22%) than in 2011 were invested in opportunistic properties as a means of diversifying their portfolios, Schroder Property said.

Ruhl said: "This includes niche markets like Southern Europe or smaller investment locations, but also project developments in top locations with rental issues."

For this year, he expects a distribution yield of 4-5% for good properties in office, retail and residential in Germany, Austria, France and the Netherlands.

Schroders also said residential property had become the "third pillar" in institutional real estate portfolios due to its lower risk profile and low vacancy rates.

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