European investors increase appetite for risk, says INREV
For the first time since the financial crisis, investors’ appetite for risk appears to be growing, according to the INREV Investment Intentions Survey 2013.
Nearly 43 per cent of investors surveyed claimed a preference for value added funds compared with 21.9 per cent in 2012.
This growth in popularity comes predominantly from large institutional investors in Germany and the Nordic region. Dutch investors, while still driven by core funds, have also reduced their preference for core from 91.7 per cent last year to 72.7 per cent now.
Nonetheless, core funds remain the dominant style with 50 per cent of investors expressing a preference for them.
“These results are interesting. They seem to indicate that investors are beginning to look for opportunities further up the risk curve as opposed to concentrating solely on core, which has dominated the market for the last couple of years,” says Casper Hesp, INREV director research and market information.
The survey results also show that a majority (55.9 per cent) of investors expect to increase their commitment to real estate as part of their overall multi-asset portfolio. Diversification and income return being the main reasons cited for this course of action.
For large investors, much of this commitment will be in the shape of joint ventures and club deals, as these vehicles are perceived to offer a greater level of control. The results show that 47.4 per cent of investors expect to increase their allocations to these products whereas only 3.5 per cent expect to decrease, resulting in a net balance of 43.9 per cent.
In 2013 45.5 per cent of investors say they will make an investment in non-listed funds. However, since 2011 the percentage of investors expecting to increase their allocations to non-listed real estate funds over a two-year period has steadily fallen. In line with this, the percentage of investors expecting to decrease their allocations has risen.
Access to expert management was cited by 70 per cent of investors as the most important reason for their interest in non-listed real estate funds. They also continue to value the benefits that non-listed investments offer in terms of access to specific sectors.
But there are obstacles too with 58.6 per cent of investors and 52.9 per cent of fund of funds mangers seeing alignment of interest with fund managers as a key reason not to invest.
The novelty of real estate and mortgage debt investments is capturing the attention of investors with 35.1 per cent expected to increase allocations to these investments. However, 50.9 per cent of investors either do not invest in these products or treat them as part of their real estate portfolio. So for those that do, 71.5 per cent expect to increase allocations in the next two years.
When it comes to country preferences, Germany retains its title as favoured location with almost 68 per cent of investors, 92.3 per cent of fund of funds managers and 67.6 per cent of fund managers opting for allocations to this region.
The Nordic markets were second with 60.4 per cent of investors selecting this as their preferred location, largely driven by their own domestic investments. The UK remains in third position with 32 per cent of investors giving it the thumbs up.
“Set against the story of the wider economy and investment landscape, these results suggest a positive climate for real estate. It seems likely that real estate will continue to edge forward as part of investors’ total multi-asset portfolios,” says Matthias Thomas, chief executive of INREV.