Top 150 Real Estate Investors 2024: Survey

Last year, for the first time in several years, the largest grouping of investors – nearly half, at 48% – surveyed by IPE Real Assets expected to invest and/or commit less to real estate investments relative to the prior 12 months. This was not surprising, considering the slowdown in the market, rising interest rates, falling real estate values and the fact that many institutional investors were hit by the denominator effect of falling listed markets on their unlisted allocations.

And investors clearly acted in line with their expectations in 2023 – last year there was a dearth of transactions globally across all four quarters, implying a pullback of capital from the market. The question for all industry participants this year is whether 2024 will see a recovery in transactions as investors return to the market in any substantial way.

This year’s survey provides some evidence for optimism. The biggest grouping of investors, at 43%, expects to invest/commit more to real estate this year compared with 2023 (figure 1).

However, arguably, this is to be expected since 2023 represents such a low base from which to measure future activity. Furthermore, a similar proportion of investors (41%) expect to invest/commit broadly the same amount, which suggests that any recovery in activity could be limited.

Only 18% of investors expect to be net sellers of real estate this year (figure 2), which is down from 26% in 2023. That said, the proportion of investors expecting to be net buyers this year is roughly the same as 2023 (down from 44% to 43%).

The denominator effect was clearly in play last year, although it seemed to be easing. Figure 3 shows that about one-fifth of investors were forced to sell assets because of the phenomenon (down by more than a quarter in 2023), while figure 4 shows that 34% had to pause new investments and commitments (down from 42% in 2023).

The survey sample – which included pension funds and insurance companies from the US, Canada, the UK, continental Europe, and Australia and New Zealand – showed that the average exposure to real estate (13.2% of total assets) was very close to the average target allocation (13.5%). It also showed that 22.2% of respondents were above their target allocation, one-third were in line with the target allocation (less than 50bps difference) and 44% were under-allocated (figure 5). Last year, these three groups were split evenly, one-third each.

This situation follows an 18-month period when the majority of investors – three quarters – maintained their target allocations (figure 6) and 14% actually reduced them (only 11% increased them). This reflects a shift from last year when 41% said they had increased their target allocations, 49% had maintained target levels and only 10% had reduced them.

According to the survey, only 16% of investors reduced their allocation due to rising interest rates (figure 7). Interestingly, the proportion of investors who did not (84%) was roughly the same as those who said they were confident that real estate would provide an effective inflation hedge (figure 8).

Inflation, interest rates and bond yields were identified as the chief risk to real estate by investors (figure 9) – 45% selected this, albeit down on 64% in 2023 – perhaps reflecting a growing expectation that inflation and interest rates are peaking in major Western economies. The cost and availability of debt – which is interlinked with interest rates – was the second most chosen risk (22.5%), while climate risk came in third. Geopolitics was only cited by 5% of respondents, despite the worsening crisis in the Middle East.

Alternative asset classes like real estate, infrastructure and private equity have come under greater pressure from the relative value of fixed income as interest rates and bond yields have risen. A corollary is potentially greater competition between the different alternative asset classes themselves as they vie for a smaller pot of institutional capital allocations.

More than half of investors said they thought real estate was as attractive as other alternatives like infrastructure and private equity today (figure 10). However, nearly one-third said it was less attractive and only 12% said it had a greater appeal.

While the survey picked up changing patterns at the asset-allocation level, it also reflected changes within the asset class itself. There has been a growing body of anecdotal evidence that institutional investors are striving to move away from being heavily weighted to traditional sectors – namely, office and retail – and to increase their exposure to ‘beds and sheds’, in the form of logistics and an evolving ‘living’ sector that encompasses a widening range of residential assets.

Not surprisingly then, this year’s survey shows residential and logistics as the most favoured asset classes by a wide margin (figure 12). Investors could select multiple sectors when identifying those they were likely to invest in the next 18 months. Residential came first with 86% and logistics came second at 76%. Student housing was third at 45%. However, retail and offices did not come last. Retail was in fact joint fourth with data centres, and offices was joint fifth with life sciences – ahead of hotels and healthcare.

But looking at the longer term, the results were clear. Investors were asked how they expected their sector weighting to change over time. Figure 11 shows the biggest area of reduction is expected to come from offices (50%), followed by retail (20%), while the largest increases are anticipated in residential (56%) and logistics (53%).

As for the levels of risk-return investors are favouring today, core came out top at 68% (figure 13), but value-add came in at a close second at 63% (up from 48% in 2023). Opportunistic was slightly up from 36% to 39%, debt investments rose from 42% to 44%, but listed investments fell from 36% to 24%.

Around one-third of the Top 150 real estate investors contributed to the survey. Respondents represented a global sample and included the likes of Australia’s Aware Super, Canada’s CDPQ, Denmark’s PFA, Germany’s MEAG/Munich RE, the Netherland’s PGGM, New Zealand’s NZ Super Fund, Switzerland’s Zurich Insurance and the US’s CalSTRS.