Institutional investors are set to pump an extra $52.5bn (€48.8bn) into real estate markets around the world this year as they increase allocations to the asset class once more, according to Colliers International.
But with too much money chasing the same product, the buyers should turn to infrastructure, the international property firm said in a report into how long the property bull market was likely to last.
Walter Boettcher, EMEA research director and economist at Colliers, said: “The real concern for this particular property cycle is that there is too much money chasing the same product.”
There are probably too few investible assets to satisfy this steadily increasing demand, thinking strictly about real estate offering secure long-term income that can be used for annuity liability matching, he said.
This is particularly the case given the trend towards short commercial leases, he added.
“Infrastructural development creates the necessary framework for the formation of new geographies that will, in turn, provide fresh opportunities for the delivery of individual real estate assets,” Boettcher said.
“The lasting real estate opportunity is to reshape the property cycle instead of simply moving along a well-trodden path.”
This requires the sector to consider new opportunities that will foster economic growth and, along with that, demand for “technically fit, modern commercial real estate”, he said.
According to the report, institutional investors are expected to increase their target allocations for real estate investment to 9.6% this year, up from 9.4% in 2014, which translates into an extra $52.5bn flowing into the market, given the size of capital pools.
This follows a $105bn increase in 2014, when allocations rose from 8.9% in 2013.
If these allocations were applied more widely across private equity and sovereign wealth funds, the total increases would be $80bn in 2015 after $160bn last year, the report said.
Colliers said the amount of money being directed toward real estate investment was also evident from the size of cross-border direct investment flows.
These showed $262bn had changed hands internationally in 2014, although this is still well shy of the 2007 peak of $382bn.
Asian capital accounted for 30% of the cross-border property investment last year, up from 13% back in 2007, and investment stemming from this region showed signs of further growth, Colliers said.
It is Chinese investment that has led the ballooning in Asian investment activity, according to the report.
Internationally, the bull market in the property sector is likely to carry on at least until the first interest rate increases happen in the US – seen this year or next – in the UK in 2016 or 2017, and in the euro-zone at the end of the decade, the report predicted.