Competition from sovereign wealth funds (SWFs) has led to a glut of un-deployed European institutional capital that will be diverted to high-yielding real estate, according to a report launched at MIPIM.
Colliers International has predicted a “significant new wave of capital” from European pension funds and insurers as they reallocate money from equities and bonds and seek to relieve “pent-up demand” for real estate.
The study estimates that €60bn will be diverted to European real estate from these institutions in 2014, assuming allocations to the asset class rise on average by 1%.
But competition from SWFs means European institutions are likely to target non-prime real estate after struggling to fully deploy capital into the core markets last year.
Colliers said an increasingly competitive European market “has led to pent-up European institutional demand which, coupled with an allocation shift from bonds and equities, could lead to a significant new wave of capital seeking higher yielding property assets across Europe.”
The property consultancy added: “Just a 1% increase in real estate investment fund allocations for EU pension and insurance funds would amount to €60bn of fresh equity; an increase Colliers believes we are likely to see in 2014.
“This figure would be higher were it not for lack of availability of suitable product and competition from sovereign wealth funds.”
Colliers also predicts that European institutional allocations to real estate will rise by 3% over the next three years, amounting to €180bn in demand.
The report estimates that €12bn was invested in European real estate by SWFs in 2013, while local institutions only managed €10bn.
UK institutional investors, meanwhile, doubled the volume of new investments in their domestic market from €1.5bn in 2012 to €3bn in 2013.
Walter Boettcher, EMEA chief economist at Colliers, said: “With a good couple of years left to run of the current European property investment cycle, significant potential volumes of equity from insurance and pension fund institutions, coupled with continued appetite from SWFs and other forms of private sector capital should lead to real estate investment volumes in Europe outperforming 2013 levels – both in 2014 and 2015.”
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