Global investors underweight in real estate commit new capital to the asset class despite challenges of deployment
16 January 2018, London – Fifty six percent of global investors plan to increase their exposure to real estate over the next 24 months, targeting an average 10.2% of total capital allocation. This would amount to a minimum commitment of just over €51 billion this year.
Data from the global Investment Intentions Survey 2018, published today by INREV, ANREV and PREA, suggest continued positive sentiment toward real estate in general, and non-listed real estate in particular. The survey reinforces a continuing favourable upward trend.
Regionally, investors from Europe are expected to make the most significant allocations to real estate, accounting for 57.7% of total investment capital in 2018. North American investors will likely commit 25.2%, while those from Asia Pacific are forecasting 17.1%. Europe is also the regional destination of choice likely to attract an anticipated 41.2% of allocated capital, followed by the Americas (35.2%) and Asia Pacific (17.4%). However, given that more than half of this allocation will come from Europe the region could see a net outflow, while the Americas could see a net inflow, of capital.
Within Europe, the UK is seen as the top pick for 66.1% of investors, closely followed by France (62.5%), with Germany in third place (60.7%). Spain, which has seen dramatic year-on-year improvement – up from ninth in 2016 and fifth in 2017 – has firmly established its credentials as an ‘in demand’ target. It now shares the fourth spot with the Netherlands. Both countries are favoured by 33.9% of investors.
Fifty percent of all investors expect to increase allocations to non-listed real estate funds, specifically. Asia Pacific investors have the strongest interest in increasing allocations to non-listed funds ahead of those from North American who are followed by European investors. A particular wave of enthusiasm in Europe is anticipated from investors domiciled in Italy (66.7%) and Germany (50%).
While institutional investors overwhelmingly pursue a core style of investment, the survey points to a potential shift in emphasis in 2018 – at least at a regional level.
Half of investors identified value add as their preferred investment style for Europe, owing to the increasing challenges of sourcing core product. There was also an increased appetite for opportunistic – up from 10.5% in 2017 to 18.8% this year; and a corresponding drop in preference for core – down to 31.8%. Investors seem to be shifting marginally up the risk curve in the hunt for assets that might deliver better returns.
Cities and sectors
The survey results reflect the relentless advance of urbanisation across large swathes of the world and identifies investors’ appetite for quality product in core cities.
Paris / office is the leading city / sector combination identified by 55.4% of investors. Even with Brexit uncertainties, the weakness of sterling has boosted the allure of London with 46.4% of all investors highlighting London / office as their preferred city / sector combination for investment in 2018. Last year’s top target, Berlin / office, has slipped to third place receiving endorsement from 44.6% of respondents.
Despite the recent general turbulence in retail, real estate investors remain attracted to the sector. In Europe, 75.0% of all respondents see retail as an important target, second only to the office sector, for which almost nine out of ten investors expressed a preference. Residential came in third, selected by 73.2% of investors overall.
While investor interest in real estate is booming, concerns remain about the deployment of capital because the well of suitable product is rapidly drying up. Nearly two fifths (38.3%) of investors cited this as a barrier to investing in non-listed real estate. The other major obstacle was currency risk exposure, cited by 37.0% of respondents. Interestingly, this was predominantly the view of investors from North America rather than those in Europe or Asia Pacific.
Commenting on the Investment Intentions Survey 2018, Henri Vuong, INREV’s Director of Research and Market Information, said: ‘With current global allocations to real estate at 1.3% below target, the intended upswing suggests that more capital will continue to flow into the asset class. This is clearly great news for our industry but, inevitably, the choices about where and when investors place their bets will be the key to determining success.’
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Notes to Editors
About the Investment Intentions Survey 2018
The global Investment Intentions Survey provides insight into the expected trends in the non-listed real estate investment industry in 2018.
Investment Intentions is a joint project between INREV, ANREV and PREA. The results are based on an online survey carried out between October and November 2017 that was circulated to the associations’ members and other participants in the non-listed real estate investment industry.
The Survey attracted 320 respondents in total made up of 107 investors, seven fund of funds managers and 206 fund managers. Investors’ total real estate AUM represents a minimum combined value of €427.0 billion.
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.1 trillion and INREV members deliver €300 billion of stimulus to the real economy of Europe.
INREV has 412 members which include 75 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere.
The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.
ANREV is the Asian Association for Investors in Non-Listed Real Estate Vehicles, a not-for-profit organisation based in Hong Kong. ANREV's agenda is driven by the members, in particular the investors, and is focused on improving transparency and accessibility of market information, promoting professionalism and best practices, sharing and spreading knowledge. Fund managers, investment banks, lawyers and other advisors provide support in addressing key issues facing the Asian non-listed private equity real estate fund markets.
ANREV is a sister organisation to INREV in Europe and works with a number of associations across Asia Pacific and North America on research and professional standards. http://www.anrev.org
Founded in 1979, the Pension Real Estate Association (PREA) is a non-profit trade association for the global institutional real estate investment industry. PREA currently lists over 700 corporate member firms across the United States, Canada, Europe and Asia. Our members include public and corporate pension funds, endowments, foundations, Taft-Hartley funds, insurance companies, investment advisory firms, REITs, developers, real estate operating companies and industry service providers. http://www.prea.org