Pension Consulting Alliance (PCA) has warned CalPERS about a “heated” global real estate market and urged the $299bn (€225m) pension fund to “maintain a disciplined approach to underwriting”.

In a report board meeting report by David Glickman, managing director at the real estate consultancy, CalPERS was warned over the growing volume of international capital chasing real estate deals and the effect this was having on the market.

It made reference to ‘non-traditional’ investors entering the real estate markets, such as hedge funds, fixed-income investors and equity investors seeking higher yielding and less volatile asset classes.

PCA said real estate prices had risen over the past year due to pent-up demand for core property in major cities and income-producing real estate offering better return prospects than other income-oriented investments.

But Glickman cast doubt on the sustainability of the price inflation, especially when “interest rates and new construction start to return to more normalised levels”.

That said, real estate fundamentals should continue to improve over the next couple of years, Glickman wrote, as employment increases, uncertainties about economic trends and political instability decline. It was therefore reasonable to expect increases in rent and occupancy to continue during the next 24 months.

CalPERS’s recent real estate performance has been strong: returns on its $26bn (€19.5bn) property portfolio for the second quarter was 8.4%. Its benchmark was outperformed by 6.1%.

CalPERS is pursuing a relatively conservative real estate investment strategy, generally investing more in core real estate and less in opportunistic investments.