GLOBAL - Sovereign wealth funds' (SWF) growing appetite for core real estate is a mixed blessing for the institutional market, delegates heard at the IPD European Property Investment Conference in Berlin this week.
One of the recurring messages was equity-rich institutional investors are in a strong position in today's property markets, given the absence of heavily-leveraged players that have dominated the real estate market in recent years.
But Tony Horrell, international director and head of capital markets at Jones Lang LaSalle, said such institutions are still "waiting on the sidelines" to see if there are further falls in capital values.
In comparison, SWFs have been quicker to commit capital and in the case of the UK market have been partly responsible for propping up a market suffering from a marked reduction in transaction volumes.
This new source of capital is good news for beleaguered real estate markets said Angus Macintosh, partner at King Sturge, who claimed that SWFs are increasingly targeting core European office and retail assets, and have "enormous" reserves of capital to commit.
Macintosh even claimed these investors were considering buying into alternative sectors such as infrastructure and senior housing or "anything that offers a bond-like structure".
However, he said, unlike traditional investors, SWFs are not so concerned about targeting levels of return but rather are under pressure "to park their money" in a "good legal jurisdiction" - ie a country more stable than their own - even if it means losing value on the investment.
When asked by a member of the audience if this would cause problems for the likes of pension funds, who are potentially in competition for the same assets, Macintosh said he was more concerned that once a property is purchased by a SWF it "disappears from the market".
SWFs have become renowned for their lack of transparency so Macintosh suggested once assets have been purchased by an SWF, they will generally be held in the long-term and will not figure in property indices such as those generated by IPD, reducing the transparency of the market further.