More than half of all global investors plan to raise real estate exposure in the next 24 months, targeting a median 10.2% allocation, says a new report by international RE fund associations. This would bring a minimum €51bn more into property. Paris office is the favoured asset.
The Investment Intentions Survey 2018 published by regional non-listed real estate fund bodies INREV (Europe), ANREV (Asia) and PREA (US) suggests 56% of institutions aim to increase allocations, continuing the positive sentiment toward real estate, and non-listed vehicles in particular.
Regionally, investors from Europe are expected to make the most significant allocations in 2018, accounting for 57.7% of total property investment. 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 41.2% of allocated capital. "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," the groups said in a joint release.
Within Europe, the UK is the top pick for 66.1% of investors, closely followed by France (62.5%), and Germany in third place (60.7%). Spain, which jumped to joint fourth alongside Netherlands - from ninth in 2016 and fifth in 2017 – has firmly established its credentials as an ‘in demand’ target. Both countries are favoured by 33.9% of investors.
"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," commented INREV Director of Research and Market Information Henri Vuong. "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."
Half of all investors expect to increase allocations to non-listed RE funds. Asia-Pacific investors have the strongest interest, ahead of those from North American and Europe. A particular wave of enthusiasm in Europe is anticipated from investors domiciled in Italy and Germany.
While institutional investors overwhelmingly pursue a core style of investment, there should be a shift in emphasis in 2018 – at least at a regional level, the survey shows. Half of all investors identified value-add as their preferred investment style for Europe owing to the increasing challenges of sourcing core product. There is also an increased appetite for opportunistic – up to 18.8% of those canvassed, from 10.5% in 2017 - accompanied with a corresponding drop in preference for core to 31.8%. "Investors seem to be shifting marginally up the risk curve in the hunt for assets that might deliver better returns," the associations said.
The survey reflects the relentless advance of urbanisation, and identifies investor appetite for core cities. Paris office is the preferred 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% highlighting London office as their preferred investment. Last year’s top target, Berlin office, slipped to third place. Despite the recent general turbulence in retail, 75.0% of all respondents see the sector as an important target, second only to office. Residential came in third, chosen by 73.2%.