GERMANY – German institutional investors will continue to search for yield in real estate investments, mostly via fund structures rather than direct holdings, according to two independent studies by Commerz Real and Universal Investment.
Over the next three years, the average real estate allocation in German institutional portfolios is set to increase to a record high of 8.6%, according to a Commerz Real survey of more than 110 institutional investors.
The company said: "Especially among companies, pension funds and Versorgungswerke, the future increase could be much stronger, which means, over the medium term, exposures of up to 18% could be achieved."
In a separate survey by Universal Investment noted a "paradigm shift" in the type of investments.
Fifty-four percent of the German institutional investors surveyed, with more than €44bn in assets under management, invest in real estate directly, while 46% invest via funds.
However, for their new investments, more than 60% are considering fund solutions, 6% via the new Investment KG introduced in the AIFM Directive.
Only around one-third of the new investments will be directly held properties, Universal Investment said.
Commerz Real noted a heightened interest in residential property, with an increase in their share from 16% to 21% over the last three years.
Commercial real estate remains the dominating segment at 76% – mainly offices (64%) and retail assets (24%).
But the real estate company also noted that the share of commercial properties had "continuously shrunk in recent years to be replaced by residential properties".
Both surveys noted an ongoing home bias in German institutions' real estate investments, but, according to Universal Investment, this is "changing slowly".
The asset manager noted a shift towards Asia (11%) and even to a much smaller extent Latin America for new investments.