EUROPE – Risk appetite is growing among institutional real estate investors, with many beginning to look beyond core strategies in Europe, the latest research from INREV suggests.

The association for European non-listed real estate vehicles revealed that 43% of investors surveyed had a preference for value-added strategies, almost double the proportion (21.9%) recorded last year.

Value-added investments are commonly categorised as those with greater exposure to risk – such as pertaining to development, leases and location – and often employing higher levels of leverage than core strategies.

According to INREV's Investment Intensions Survey for 2013, the majority (50%) of investors still prefer core strategies, but this figure has dropped from 69% 12 months ago.

The shift away from core is likely to benefit moderately risky strategies, the study suggests, with interest in higher-risk opportunistic strategies remaining limited at 7%, down from 10% in 2012.

"Value-added is back," said Casper Hesp, director of research and market information, who revealed the results at INREV's winter seminar in London and suggested that investors were "moving up the risk curve".

When broken down by investor domicile, the shift towards value-added was driven predominantly by German and Nordic investors and 'others' – mainly UK, Asian, French and US investors.

Dutch investors remained overwhelmingly committed to core strategies, with more than 70% voting in favour.

During a subsequent panel discussion, John Gellatly, head of real estate multi-manager at Aviva Investors, revealed his surprise at the apparent appeal of value-added strategies, which are typically less focused on income returns as core strategies and depend on an element of capital growth and rental stability.

Gellatly said he "struggled with this middle ground" considering the limited prospects for economic growth in Europe, and would naturally favour strategies at the core and opportunistic ends of the risk spectrum.

He also questioned the interest in value-added funds when "income return" was found to be the second principal reason for investing in real estate, after diversification and before inflation hedging.

The report also revealed a mismatch between investor intentions and fund manager expectations, with more than 70% of managers selecting core as investors' preferred investment style and less than 10% choosing value-added.

In addition, more than 30% of investors said 'availability of products' was one of the most challenging obstacles when seeking to invest in non-listed real estate.

Ben Sanderson, international investment director at Hermes Real Estate Investment Management, said he was concerned that one-third of investors were effectively stating that "the product I want to invest in isn't there".