Investors struggle to find suitable fund products: INREV

The limited availability of suitable products is the main reason why investors may choose not to invest into non-listed real estate funds, according to Casper Hesp, research director at INREV.

Speaking at INREV’s Investment Intentions seminar in Amsterdam last week, Hesp said roughly 55% of all investors polled n the annual survey indicated that there may not be enough product in Europe, particularly niche funds. Or maybe there are just too many big funds: ‘One third of all capital raised in 2013 was placed with just 10 funds,’ he pointed out.

Investor behaviour is also changing, Hesp said. According to the survey, 70% of all respondents would prefer to invest in a seeded portfolio with the remaining 30% choosing a blind pool. In 2009, the figures were the reverse: 70% preferred a blind pool at the time with only 30% opting for a seeded portfolio. Access to expert management expertise remains the key reason for investors to choose to invest in non-listed property funds, followed by access to specific sectors and the diversification benefits of a multi-asset portfolio.

For the first time this year, the Investor Intentions survey contains the conclusions of a back testing exercise. The hugely positive sentiment towards the German retail and industrial sectors 12 months ago was not matched by investment activity or were difficult to access, Hesp noted. However, sentiment towards the UK and German office markets was closely matched with deployed capital, he said. ‘These are liquid markets that allow quick and easier deployment of capital.’

While investors showed a clear preference for joint ventures or club deals in the previous survey held at end-2012, in that same year only €4 bn was channelled into this investment vehicle out of a total €29.5 bn. The remainder was split almost equally between non-listed real estate vehicles (€11.5 bn) and separate accounts (€10 bn).

This year's survey shows that Dutch investors once more rank as the most internationally oriented, with over 80% diversified by country, followed by the UK at just under 70% and Germany just below 60%. The top investment preference of Dutch investors this year is UK industrial and logistics. Real estate mortgage debt is also popular among Dutch investors, with 41% expecting to increase their allocations to this segment compared to 25% overall.

Both Dutch and Swiss investors have a strong preference for core investment of around 75%. By contrast German and to a lesser extent Nordic investors have a stronger preference for value-add investments, at 67% and 47% respectively. North American investors have no interest at all in core European assets: value add dominates at 75% with opportunistic making up the remainder or 30%.

The survey attracted a significantly larger number of respondents this year, 324 representing €1.4 trn compared to 193 representing €1 trn a year ago.

Click on the attachment below for Casper Hesp's power point presentation.