EUROPE - A study of European institutional investors reveals one in four expect to increase their allocation to real estate this year, while one in 20 expect to reduce their weighting.

A survey conducted by Invesco and IPE, sister publication to IPE Real Estate, has revealed real estate is still the preferred sector of alternative investments among these investors - described as "the floor that underpins European investors' alternatives credentials" albeit interest in property is now being "tempered by which market is being referred to".

While the survey was designed to look at all classes of asset allocation, approximately 26% of those questioned said they intend to increase their allocation to real estate while 5% said they would reduce their holdings.

The comprehensive study of asset allocation and the attitudes of 115 respondents - most of whom are pension funds - also indicates real estate is now more popular with the medium-sized to large investors as the average allocation is 10% compared with small investors with a weighting of 4%.

At the same time, it appears Swiss investors are the most likely to consider real estate as their allocation is billed as being 22% of assets, while UK and Irish investors invest approximately 9% of their plan assets in the real estate sector.

"The survey results do point to the fact that the class is increasing in popularity among the larger and medium-sized funds, though with wide variation from country to country," states the report.

Offerings such as infrastructure and forestry were listed among the ‘other alternatives' sector but are clearly gaining momentum too, but as with direct investment in real estate, the process of investing and gains returns can be lengthy, and "forestry and timberland can involve similar time lags" notes the study.

One key development of opinion among institutional investors concerns the question of whether real estate is now considered to be an absolute or relative return product.

When asked for their views of sources of absolute and relative returns, it was suggested infrastructure, timberland are regarded as being in the absolute returns fold.

In contrast, real estate is now considered "more ambivalent in investors' eyes", suggests the study.

"While its ‘alternatives' credential sees most investors regarding it as an absolute return play, the development of real estate investment trusts (Reits) and other investment vehicles is making the market more liquid and subject to relative returns. The wider of more indices and the wider use of more standardised valuation techniques within portfolios means, with greater transparency and liquidity, real estate as a relative returns player will increase its importance," the survey indicates.

For more information about this survey, contact Tony Pryce at tony.pryce@ipe.com

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