A majority (56%) of global institutional investors plan to increase their exposure to real estate over the next 24 months, targeting an average 10.2% of total capital allocation. This would amount to a minimum commitment of just over €51 bn this year.
This is the main conclusion of research published by real estate industry bodies INREV (Europe), ANREV (Asia) and PREA (US).
Data from the global Investment Intentions Survey 2018 suggest continued positive sentiment toward real estate in general, and non-listed real estate in particular.
Regionally, investors from Europe are expected to make the most significant allocations to real estate, accounting for 57.7% of total investment capital in 2018. North American investors will likely commit 25.2%, while those from Asia Pacific are forecasting 17.1%.
Europe is also the regional destination of choice likely to attract an anticipated 41.2% of allocated capital, followed by the Americas (35.2%) and Asia Pacific (17.4%). However, given that more than half of this allocation will come from Europe the region could see a net outflow, while the Americas could see a net inflow, of capital.
Top picks
Within Europe, the UK is seen as the top pick for 66.1% of investors, closely followed by France (62.5%), with Germany in third place (60.7%).
Spain, which has seen dramatic year-on-year improvement – up from ninth in 2016 and fifth in 2017 – has firmly established its credentials as an ‘in demand’ target. It now shares the fourth spot with the Netherlands. Both countries are favoured by
33.9% of investors.
Fifty percent of all investors expect to increase allocations to non-listed real estate funds, specifically. Asia Pacific investors have the strongest interest in increasing allocations to non-listed funds ahead of those from North American who are followed by European investors.
A particular wave of enthusiasm in Europe is anticipated from investors domiciled in Italy (66.7%) and Germany (50%).
Up the risk curve
While institutional investors overwhelmingly pursue a core style of investment, the survey points to a potential shift in emphasis in 2018 – at least at a regional level. Half of investors identified value add as their preferred investment style for Europe, owing to the increasing challenges of sourcing core product.
There was also an increased appetite for opportunistic – up from 10.5% in 2017 to 18.8% this year; and a corresponding drop in preference for core – down to 31.8%. Investors seem to be shifting marginally up the risk curve in the hunt for assets
that might deliver better returns.
Despite the recent general turbulence in retail, real estate investors remain attracted to the sector. In Europe, 75.0% of all respondents see retail as an important target, second only to the office sector, for which almost nine out of ten investors expressed a preference. Residential came in third, selected by
73.2% of investors overall.
Cautionary note
While investor interest in real estate is booming, concerns remain about the deployment of capital because the well of suitable product is rapidly drying up. Nearly two fifths (38.3%) of investors cited this as a barrier to investing in non-listed real estate.
The other major obstacle was currency risk exposure, cited by 37.0% of respondents. Interestingly, this was predominantly the view of investors from North America rather than those in Europe or Asia Pacific.
