Institutions are looking to increase their target allocations to real estate – but conviction continues to fall.

Findings from the Institutional Real Estate Allocations Monitor, conducted by Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates, were presented today.

Conducted between May and October this year, the survey of 228 participants with $10.3trn of total assets found falling conviction among investors for the asset class.

In contrast to continued momentum in capital flows to the asset class, investor conviction has declined, the survey found, with institutions increasingly concerned about asset valuations, rising interest rates and geopolitical risks, such as Brexit and terrorism.

The average target allocation to real estate now stands at 9.9%, up 34bps from last year and up by around 100bps over the past four years.

“We expect it to rise above 10% next year – but at the same time, confidence has reduced year on year from 2013 to 2016,” said Will Rowson, partner at real estate investment firm Hodes Weill & Associates.

Despite concern about late-cycle valuations, the survey found 90% of institutions remain active in allocating capital to real estate.

“Being late-cycle means more equity is flowing into defensive strategies where there’s a higher income return rather than capital return,” Rowson said.

Institutional interest in core, value-add and opportunistic strategies has trended steadily upward over the past four years.

Institutions are most focused on value-add strategies, followed by opportunistic strategies. The strong interest in higher yielding strategies demonstrates that institutions have a growing appetite for alpha-generating strategies.

The survey found strong demand for private funds, with nearly 80% of institutions interested in closed-end vehicles.

Rowson said there is growing interest for open-ended funds in Europe and in Asia, despite recent signs of an acceleration in redemptions.

Larger institutions continue to show strong interest for non-fund vehicles including direct investing, joint ventures and separate accounts, the survey found.

Most institutions (94%) rely on third-party managers for real estate investments. Institutions expect to allocate 85% of their invested capital in 2016 to third-party managers.

The survey found large-cap managers continue to win more than their fair share of capital allocations. However, boutique managers may be better positioned to gain allocations over the coming years, as 28% of institutions intend to add managers to their portfolios over the next 12 months.