Hotels are attracting significant inflows at the expense of other asset classes, according to Universal-Investment's fifth annual survey of German institutional investor behaviour, while Germany remains the preferred European market, although there are signs of a diversification trend.
The survey results show that institutional investors plan to maintain their investments in German real estate, with domestic allocations at 46.8% compared with 45% the previous year. Allocations to other European markets have risen to 30.8% compared to the previous year's 25%.
'An analysis of real estate holdings on our platform also shows that institutional investors are seeking greater diversification within established markets,' commented Alexander Tannenbaum, managing director in charge of real estate at Universal-Investment.
North America ranks in third place, largely unchanged at a level of 18.9%, simliar to 2016's 19%. Interest in Asia-Pacific is declining, however, with just 3.5% of investors planning to invest in that region, down from the previous year's 8%.
Hotels attracting double the interest
In terms of asset classes, the survey's respondents said they planned to reduce their investments in office properties, with intentions down 7 percentage points on last year's figure to 30.4%. Interest in the retail sector also declined slightly to 21%, with residential investment also experiencing a reduction to 14.5% from 19% and logistics slipping to 10.9%.
'We have witnessed a veritable renaissance of residential real estate in institutional fund portfolios for a number of years now. However, the high price levels reached in this segment now seem to be causing a certain stagnation of new investments,' said Tannenbaum.
However, planned allocations to hotels have more than doubled from last year's 7% to 14.5%, while niche segments such as health care properties and student apartments are expected to attract 5.2% of new investments. 'Aside from rising prices in traditional real estate sectors – offices, retail and residential – diversification across sectors is a key aspect of investments in such products as hotels or health care properties,' he added.
Investor expectations of current cash flow and annual distribution yields have continued to weaken and now stand at 4% (previous year: 4.13%). The surveyed investors calculate with a realised total return of 4.72% after gains from the sale of some or all properties. The annual total return calculated according to the BVI method is expected at 4.57%.
Universal said that institutional investors with total assets under management of about €60.5 bn, including roughly €5.1 bn in real estate investments, participated in the survey.
