Investors bullish about real estate in 2014

Investors expect to increase their allocations to real estate from 9.5% to 10.3% of their overall portfolios, according to the latest INREV Investment Intentions Survey.

The report estimates that the 142 institutional investors participating in the study expect to invest almost €35 bn into real estate globally this year.

Growth is being driven by strong demand from investors in the Asia Pacific region. Over half of those surveyed (53.8%) are expecting to increase their allocations over the next two years.

European investors also have an optimistic outlook on the market, with 48.9% of respondents saying they expect to increase their allocations. There is more caution amongst North American investors as only 26.9% plan to do the same while the majority (61.5%) do not expect allocations to change.

More stable economic conditions and a weak correlation with bond and equity markets mean that real estate remains a popular choice for investors looking to diversify their portfolios. This was borne out in the survey findings, with diversification benefits cited by investors and fund of funds managers as the top reason to invest in real estate, scoring an average importance rating of 4.2 (out of 5), up from 3.9 last year.

For Europe, the survey results suggest that interest in joint ventures and club deals, which remains high, may now have passed its peak. Over a third (36.6%) of respondents expect to increase their allocations to these products, which is more than 10 percentage points lower than a year ago.

Debt will be a popular investment target over the next two years. Overall, 25.2% of investors expect to increase their allocations to real estate and mortgage debt, with large investors in particular looking to increase their exposure to debt markets. And fund managers of all sizes continue to launch real estate debt products.

'These results show a stabilisation of confidence amongst investors with increased allocations to real estate, which is good news for the sector,' said Casper Hesp, INREV’s director of Research and Market Information. 'There are also signs of a potential change in emphasis with investors searching for the optimum way to structure their portfolios to achieve the ideal investment mix.'