Global investors keep faith in real estate with non-listed funds preferred as key route to market
17 January 2017, London – A minimum of €52.6 billion of capital is expected to be invested in global real estate during 2017. This represents a total average target allocation of 11.5% for investors - a gain of 1.5% from current allocations.
These results from the global Investment Intentions Survey 2017, published today by INREV, ANREV and PREA, underline a continuing strong appetite for real estate among institutional investors, despite continuing global economic and geopolitical uncertainty.
Overall, more than half of investors who responded to the survey plan to increase their global real estate allocations over the next two years. The greatest uplift was suggested by European investors – up from 9.4% currently to 11.5%. Investors from Asia Pacific are not far behind with intentions of increasing their target allocations to real estate from 8.4% to 10.4%; while North American investors are mostly on target with the aim of growing their real estate allocation by 80 bps from 11.3% to 12.1%.
However, more detailed analysis reveals significant discrepancies between large and small investors on a weighted basis. While all investors plan to increase their allocations to real estate, larger investors will still maintain a lower allocation to this asset class as a proportion of total assets under management, than their smaller peers. North American investors expect to increase their allocation to real estate by 80 bps, compared to 200 bps and 210 bps for Asia Pacific and European investors, respectively.
Around half of the expected investment capital (49%) will come from European investors, with 36.3% from North American investors and 13.8% from investors from the Asia Pacific region. Interestingly, however, the US is expected to attract the largest percentage of total capital earmarked for investment at 40.9%; while 36.4% is predicted to be heading to Europe and 18.0% to Asia Pacific. The Americas (ex US) will attract a small but growing 4.8% share of the total capital. This picture suggests that, in general, investors will be adopting a more diversified global investment strategy than previously.
Winners and losers in Europe
The survey reveals a shift in investor sentiment relating to specific European markets. Germany, which was last year’s most preferred European market, has been replaced by France and the UK as the joint top pick for real estate investment in 2017 – both of which were selected by 74.1% of investors. The Netherlands is fourth, maintaining the position it attained last year, with Spain in fifth place – jumping up from ninth in 2016.
This picture is broadly echoed by fund of funds managers and fund managers, though France and Germany were both identified as the top targets for investment by 100% of fund of funds managers.
The majority of investors identified Germany office (56.9%), France office (55.2%) and Germany retail (51.7%) as their likely top three choices for real estate allocation in 2017. Preference for Germany is concentrated in office and retail whereas for UK and France, preference is spread across a wide range of sectors.
So far as city and sector preferences are concerned, all respondents indicated a move away from the once safe-haven of London office, which has fallen from the number one preference last year to fourth place (at 48%) in the current survey. This suggests post-Brexit caution. All respondents highlighted Berlin office as their primary city / sector preference (48.9%) for 2017, followed by Paris office (48.3%) and Frankfurt office (46.0%).
Risk and style
Nearly half of investors selected value added (48.7%) above core (40.8%) as their preferred investment style for the second consecutive year, reflecting a steady shift toward a greater appetite for risk. Opportunity came in at a relatively low (10.5%) third place.
In a reversal of sentiment from last year, the majority of investors identified non-listed real estate funds as the best route to market with 42.3% expecting to increase their allocations to these vehicles. Joint ventures and club deals, which were seen as the most desirable option in 2016, came in second with 38.8% of investors picking them this time. Separate accounts – last year’s fourth preferred vehicle type – are in third place for 2017 swapping places with direct real estate at 38.8% and 23.1%, respectively.
However, on a weighted basis, the survey reveals that larger investors still tend to favour joint ventures and club deals, separate accounts and direct investment.
Diversification and access to expert management remain the key drivers for investors to invest in non-listed real estate funds. But in the present environment, investors continue to see challenges for fund managers – particularly the availability of suitable product and the ability to deliver target returns.
‘The rise in capital allocation to real estate investment suggests a robust story for the coming year,’ said Henri Vuong, INREV’s Director of Research and Market Information. ‘There were obvious questions and concerns raised about certain markets that have historically been seen as bomb-proof, but this simply reflects the healthy ebb and flow in sentiment that comes with sophisticated investment decision making. Time will tell, but the survey points to a positive prognosis for the real estate investment industry, with non-listed funds driving access for many investors.’
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For further information, please contact:
Justin St Clair-Charles, inrevteam@firstlightpr.com | +44 (0) 7769 64 059
Hannah Thompson, inrevteam@firstlightpr.com | +44 (0) 7875 292187
Notes to Editors
About the Investment Intentions Survey 2017
The global Investment Intentions Survey provides insight into the expected trends in the non-listed real estate investment industry in 2017.
Investment Intentions is a joint project between INREV, ANREV and PREA. The results are based on an online survey carried out between September and November 2016 that was circulated to the associations’ members and other participants in the non-listed real estate investment industry.
The Survey attracted 314 respondents in total made up of 119 investors, 11 fund of funds managers and 184 fund managers, representing a minimum combined total value of €2.1 trillion AUM.
About INREV
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 to act for investors and other participants in the growing non-listed real estate vehicles sector. The non-profit association is based in Amsterdam, the Netherlands. INREV aims to create a forum for the sector and increase the transparency and accessibility of non-listed vehicles, to promote professionalism and best practice and to share and spread knowledge. INREV currently has 378 members drawn from leading institutional investors, fund managers, banks and advisors across Europe and elsewhere. In 2016, 40 new members joined INREV. For further information, please visit https://www.inrev.org/
About ANREV
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. https://www.anrev.org/en/
About PREA
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. https://prea.org/