GERMANY - German retirement vehicles are among the institutional investors planning the largest increase in their real estate holdings over the next two years, according to research conducted by Feri Advisors.
Pensionskassen and other pension providers aim to increase their exposure to real estate from 9.4% to 10.3%, said the consultancy, quoting Feri's latest study into institutional investors' behaviour.
Feri looked at 150 institutional investors with combined assets under management of €1trn in its bi-annual study, 7% of which is currently held in real estate.
However, the firm has now calculated there could be an average prospective 0.5 percentage points increase of holdings in this asset class by 2011, while insurers are planning the largest addition of 1 percentage points to 6.1%.
Feri said heightened interest in real estate was triggered by the financial crisis, and added interviewees named the asset class's low correlation to equities and bonds, along with low volatility, added diversification as well as a widened investment universe in the real estate sector as the most important features which make real estate a potentially attractive investment.
Continuing a downward trend, direct real estate holdings are expected to reduce further from 52% of holdings to 48%, having already shrunk by 10% over the last year.
To gain their indirect real estate exposure 24.5% of institutional investors - a rise of 2.5 percentage points on 2008 - are expected to invest in ‘Spezialfonds', a German vehicle tailored to their regulatory needs, while closed funds still appeal to 6.1% of respondents - a 2.6 percentage points increase on the previous survey.
Allocations to mutual funds are likely to reach 4.3% of assets, but REITs, Real Estate Private Equity (0.1%) and real estate equity (0.2%) investments are hardly being used, at 0.1%, 0.1% and 0.2% respectively, and no considerable change is expected in the short-term.
That said, exposure to domestic property is expected to fall by 9 percentage points from 70% at present while their exposures to Western Europe (23%) and the US (3.1%) is set to grow by around 2.5 percentage points each.
A decline is also expected in interest towards office properties, as they currently make up 57.5% of the combined portfolio but holdings are forecast drop by 5.2 percentage points while investments in retail property - now holding a 13% average portfolio weighting - are set to grow.