EUROPE - European institutional investors have developed a lower appetite for risk and a desire for greater control over real estate investments over the past two years, according to the European Association for Investors in Non-listed Real Estate Vehicles (INREV).

The latest INREV Investment Intentions study found that close to 70% of end investors, including as pension funds, preferred core style real estate funds, compared to 38% of those questioned 12 months ago, and compared to 3% of respondents 24 months ago.

The shift towards core has been almost completely at the expense of opportunity funds, whose popularity among investors fell from 37% 12 months ago to 3%.

"This shift down the risk spectrum shows that investors are focused on the benefits that real estate can offer, such as diversification and income generation, and which can be found at the lower risk-return end of the scale with core funds," said Andrea Carpenter, Interim chief executive at INREV.

"When this shift started in 2009 it was a reaction to the financial downturn. But the continued trend suggests that investors are revising their expectations of the role of non-listed property funds."

Capital raising for new funds is expected to correspond to this increased appetite for core real estate, as approximately 55% of end investors and fund-of-funds (FoF) managers intend to increase their allocation to core funds.

Fund managers appear to be aware of the trend as close to 70% of those questioned said they intend to launch core funds in the next two years.
Fund-of-funds managers have grown increasingly in favour of core funds (43% versus 23% in 2009), but in contrast to end investors are equally positive about opportunity funds (43%).

INREV argued this indicates FoF managers were looking to capitalise on opportunities in the current market, although they also reflected their general preference for higher risk-return strategies compared to pension funds.

INREV also found that a movement towards greater control of investments on the part of investors and smaller investor pool sizes gained ground over the past 12 months.

The association said joint ventures and direct real estate investments had grown in popularity among its investor membership.
The survey also found that close to 80% of investors now prefer a high level of investor involvement in real estate funds and a smaller number of investors in pooled vehicles.

This is marked increased from 12 months ago when survey respondents were divided equally on their preferences for small or large investor pools.