Institutional allocations to real estate are set to breach 10% in 2017 as the asset class makes up an increasingly significant component of investors’ portfolios, according to a global survey published on Tuesday.
Despite concerns around cycle and opportunities in real estate, momentum continues to drive real estate as an asset class, the Institutional Real Estate Allocations Monitor, now in its fourth year, found.
The survey results show average target allocations to real estate are increasing year-on-year and are now close to a record 10%. At the same time, target allocations increased around 100 bps over the past four years with institutional portfolios 8.9% invested in real estate, up from the 2015 portfolio allocation of 8.5%. The average target allocation to real estate now stands at 9.9%, up 34 bps from 2015 and up approximately 100 bps over the past four years.
But despite rising target allocations, institutions remain broadly under-invested relative to target allocations with an average 100 bps under-invested, the survey found. Some 50% of institutions surveyed are under-invested by an average of 250 bps and have significant capital available for investment, the report found.
Institutional real estate portfolios have generated an average annual return of 10.7% over the past four years. Last year, returns averaged 10.8%, down from 11.7% in 2014,but they continue to exceed the average target return of 8.4%.
The report includes research collected from 228 institutional investors in 28 countries, with total assets under management exceeding US$10.3 tln (€9.4 tln) and portfolio investments in real estate totalling around US$920 bn.
The Cornell University Baker Program in Real Estate and Hodes Weill’s Allocations Monitor focuses on the role of real estate in institutional portfolios, and the impact of institutional allocation trends on the investment management industry.
Founded in 2013, the Allocations Monitor is a comprehensive annual assessment of institutions’ allocations to, and objectives in, real estate investments that analyses trends in institutional portfolios and allocations by region, type and size of institution.
