A survey of over 200 institutional investors around the globe has suggested that commercial property is falling out of favour, as funds turn to private credit solutions.
The survey was conducted by Tradeteq, a technology provider for securitisation-as-a-service and bank asset distribution.
The survey findings show that almost 70% of institutional investors are either ‘likely’ (15.2%) or ‘very likely’ (54.4%) to reduce the allocation of commercial property in their portfolios last quarter, and instead switch to private credit.
These results reflect the uncertain outlook for commercial property, particularly in the wake of the pandemic and subsequent changes in working habits – notably, hybrid working. Furthermore, economic slowdown and higher interest rates have tarnished the sheen of commercial property, Tradeteq suggests.
However, a core group of investors remain committed to the sector with 30.4% ‘unlikely’ (15.2%) or ‘very unlikely’ (15.2%) to move away from it.
Mattia Tomba, head of international markets at Tradeteq, said: 'It’s clear from the results of our survey that investors are losing confidence in commercial property as an asset class. At the same time, private credit has emerged as a robust asset class able to deliver the returns that investors seek.'
The private credit market grew from $280 bn (€260 bn) in assets under management (AUM) in 2007 to $1.5 trn in 2022, according to PitchBook.
With an estimated $2.72 trn of funds available for investment in September 2023, the market is widely expected to grow more. Preqin estimates its market size to reach $2.8 trn by 2028.
