Swedish investors favour home market: INREV

Institutional investors in Sweden show a marked preference for the domestic market in their real estate investments, according to INREV's Investor Universe Sweden Survey 2011.

Less than 20% of the total real estate exposure of Sweden's institutional investors is held outside Sweden. By contrast, investors from the Netherlands and Germany have 57% and 35% of their total real estate investments in non-domestic markets, respectively. Only the UK has an even smaller exposure to non-domestic real estate investments than Sweden, with a total of 13%.

This very strong domestic focus might be partly explained by the experience of Swedish investors in the 1980s who saw real estate investments abroad plummet in value. 'As a result, investors are now much more cautious about non-domestic markets. Sweden's relatively strong domestic economy also adds to the desire to stay at home,' said Lonneke Löwik, INREV's Director Research and Market Information.

Swedish investors consider domestic direct real estate investments to be both cost-efficient and highly transparent, with 80% of them pursuing a domestic direct strategy. This dominant trend holds true even for smaller investors. 'Maybe the greater availability in Sweden of smaller lot sized investor-grade stock compared with places such as London makes this strategy equally attractive to large and small investors,' commented Löwik.

The survey suggests that the current vogue for domestic direct real estate is only set to become a more prominent and enduring strategy especially among Swedish life insurance funds.

Institutional investors see little advantage in portfolio diversification through non-listed real estate investments. On the contrary, they view the country's regional economic differences and the number of different real estate sectors within Sweden as providing plenty of opportunities for a diversified portfolio without venturing abroad.

More generally, respondents to the survey expressed reservations about non-listed real estate investments owing to a perceived lack of control and influence over the investment and high cost. However, several investors indicated that they would consider a non-listed approach as part of their overall investment strategy in the future, citing access to expert or specialist management as a key benefit.

Currently, non-listed real estate makes up just 10% of Swedish investors' portfolios on average. This is in sharp contrast to Dutch institutional investors, for example, with an allocation of 34% to the non-listed real estate sector.