UK institutions to increase allocation to non-listed property by 20%

UK institutions are set to increase their allocation to non-listed real estate by 20% over the next three years to £29 bn (EUR 32 bn), according to a new report released at Mipim on Wednesday by European non-listed fund body Inrev. The main source of this growth will be an increase in overseas investments by pension funds, Inrev said. The study was undertaken in conjunction with the UK's Investment Property Forum (IPF).

'Pension funds' exposure to real estate is currently below target. Now that they are expected to increase their strategic allocation targets and non-domestic exposure, the non-listed market is likely to be one of the significant beneficiaries of this,' said Lonneke Löwik, Director of Research and Market Information at Inrev. She added: 'Most investors use non-listed funds to improve the diversification of their real estate portfolios and, in particular, to access out-of-reach sectors and sectors where they do not have the expertise to invest directly. The fastest growing area is non-domestic property. Helping investors deploy capital abroad will be a key element to the expansion of non-listed funds.'

The Inrev UK Investor Universe report shows that non-listed real estate funds dominate the non-domestic universe and, at almost £8 bn, account for three quarters of the total capital invested in real estate by UK investors outside of the UK. By comparison, non-listed funds account for 22% of domestic real estate investments. In total, UK life and pension funds' current non-listed real estate universe is estimated to be £23 bn, representing 2% of their total assets and 29% of their global real estate investments. In total, the UK life and pension funds are estimated to have £80 bn invested in real estate. This represents 7% of their total assets.

The study shows that non-listed real estate has become an acceptable and accessible investment approach. All investors in the sample had a mandate for non-listed, with 85% making investments this way. Life funds' allocations are evenly split between UK specialist and non-domestic vehicles, while the smaller pension funds mainly invest in UK diversified vehicles, with a small proportion in non-domestic and UK specialist vehicles.