Four in five European institutional investors plan to increase or maintain their exposure to real estate over the next two years, according to Aquila Capital.

The investment manager surveyed 64 investors in Europe in May and found that 80% were not going to cut their exposure and 38% were ‘positive’ or ‘very positive’ about the outlook for the asset class.

For those currently invested in real estate (87%), average exposure to real estate represented 11% of portfolios.

More than half (58%) have exposure to a core real estate investment strategy with 32% holding core-plus assets; 27% and 15% of respondents are invested in value-added and opportunistic strategies, respectively.

Despite their enthusiasm, investors have a number of concerns about the outlook for European real estate: 47% are worried by the impact of continued economic uncertainty while 43% think assets are at, or are close to, being fully priced.

Around one-third (31%) flagged falling yields in prime markets and 22% cited uncertain geopolitics and the threat of terrorism as being problematic.

The real estate investment vehicles most favoured by institutional investors include: collective funds (38%), specialist investment funds (35%) direct ownership (23%) and funds of funds (23%).

Rolf Zarnekow, head of real estate at Aquila Capital, said: “Institutional investor demand for European real estate remains extremely strong and we are likely to see increasing amounts of new capital allocated to this asset class given the risk-adjusted returns it can offer.”