Real estate muscles in on traditional asset classes: Internos

Investors' search for income will lead to dramatic increases in allocations to real estate assets, according to the latest issue of Internos' quarterly strategic bulletin.

Current trends suggest that within 10 years many institutional investors will be allocating 20%+ to real asset investment, of which commercial real estate accounts for around 60%.

'A dramatic upward shift in allocations to real assets by institutions is a game altering prospect for our industry,' said Jos Short, Executive Chairman of Internos Global Investors.

Forecasts and a stream of recent transactions suggest that attitudes towards real assets are shifting, such that they will no longer be seen as an alternative asset class but rather as one of three traditional investment classes, along with bonds and equities. In keeping with this, key countries including Germany, France and especially the US have seen significant growth in the proportion of real estate held in portfolios by investing institutions.

Short, a founding partner of the EUR 2.2 bn owner-managed real estate fund management business, said that the evidence 'is heartening for European real estate fund managers - especially if it means new entrants to transnational investment where the expertise of our, now more lean and realistic, industry is called for'.

The expected increase in real estate investment is an encouraging sign for the market. 'We have already seen strong investment in prime core real estate in major cities, with positive pricing results,' Short noted. 'The timing impact of maturing funds, bank unbundling and onerous compliance with AIFMD directives suggest that there will not be a shortage of supply in these assets until 2015, by which time banks should have complied with Basel 3 requirements. After this banks will either be willing to lend to real estate or, at least, no longer be the cause of distressed sales - so alleviating pressure on pricing.'