Wed, 13/01/2016 - 17:08
Investors will commit a minimum of EUR48 billion to real estate in 2016 globally – an increase of almost 13 per cent compared with last year’s EUR42.5 billion – according to the Investment Intentions Survey 2016, published by INREV, ANREV and PREA.
Allocations to real estate are expected to remain high, but stable. On an equally weighted basis, the average global investor is targeting an overall allocation of 10.3 per cent over the next two years – 90 basis points ahead of the average current allocation of 9.4 per cent. There are some small regional variances with European investors leading the pack targeting real estate allocations of 11.4 per cent, while Asia Pacific investors are targeting 9.8 per cent and investors in North America are aiming for 9.0 per cent. The highest target allocations look set to come from pension funds at 11.0 per cent, which is nearly double that targeted by insurance companies at 6.9 per cent. But in general, more than half (53.3 per cent) of all investors expect to increase their allocations to real estate over the next two years.
Around two fifths of the total capital intended for real estate in 2016 is expected to come from investors in each of Europe and North America, with the final fifth being attributed to investors in Asia Pacific. Investors have indicated that the lion’s share of this money (41.9 per cent) will be deployed in Europe. Around 35.5 per cent will flow into the US, 16.9 per cent will be invested in Asia Pacific, while the Americas (excluding the US) will receive 5.6 per cent.
Fund of funds managers have also suggested that they will significantly favour Europe where they intend to deploy 59.3 per cent of their capital. Of the remainder, they will invest 20.2 per cent in the US, 18.0 per cent in Asia Pacific, and only 2.8 per cent will be targeted at the Americas (excluding the US).
Germany remains the top destination for investors with 73.5 per cent of them intending to invest in this market in 2016. France is in second place supported by 61.8 per cent of investors while 58.8 per cent of investors look set to invest in the UK. No other country received over 50 per cent of investors’ support as a preferred destination for their capital. However, the Netherlands (39.7 per cent), Belgium (36.8 per cent), Finland (33.8 per cent), Sweden (32.4 per cent) and Denmark (32.4 per cent) all look set to be key destinations for investors over the coming 12 months. The view from fund of funds managers is in stark contrast, with 100 per cent putting the UK at the top of their list, leaving Germany, France and the Netherlands to share the number two slot. And fund managers rated Germany top at 65.6 per cent with the UK coming a close second at 64.8 per cent and France in third place at 48.4 per cent.
There was considerable change among the other 16 destinations identified in the Survey with the Netherlands rising four places to the number four slot from eighth in 2015. Conversely, Central Europe fell five places from seventh to twelfth.
This year, for the first time, the Survey sought feedback on the relative attractiveness of capital cities versus regional cities in the three leading countries – Germany, France and the UK. Perhaps unsurprisingly, the ‘other cities’ category was deemed less favourable than key cities such as London, Paris and Berlin but the gap between Paris and the rest of France was significantly more marked than was the case for either Germany or the UK.
In terms of preferred sectors, offices continue to be popular for most investors with 88.2 per cent expecting to invest in this sector in 2016. Retail remains a strong favourite for 77.9 per cent of investors. There is significant interest in the industrials / logistics sector with 58.8 per cent of investors highlighting this sector versus 54.4 per cent for residential. For fund of funds mangers, office, retail, industrial/logistics and residential are all equally ranked with 90 per cent of respondents intending to invest in these sectors.
‘Appetite for real estate seems to be as strong as ever regardless of investor domicile and this year’s Survey highlights some interesting themes. For example, the appeal of the big European cities remains undiminished. Despite pricing issues in places such as London, investors clearly feel the benefit of these mature and relatively liquid markets where it is easier to invest and therefore easier to avoid cash drag,’ says Henri Vuong, INREV’s Director of Research and Market Information.
Nearly two thirds (64.1 per cent) of investors targeting European real estate expect their allocations to joint ventures and club deals to increase – making this the preferred route to market. Only 1.3 per cent of investors anticipate decreasing their allocations to these products. Non-listed real estate funds are the second most popular route to market with 46.7 per cent of investors expecting to increase their allocations to funds and 26.2 per cent likely to maintain their current allocations to these products. Direct investments are the third preferred route with 43.0 per cent of investors expecting to increase their allocations to these products, 9.3 per cent expected to decrease and 16.8 per cent expected to maintain current allocation levels.
However, on a weighted basis the picture indicates that larger investors are likely to decrease their allocations to non-listed real estate funds significantly more than smaller investors and that they will do so in favour of joint ventures, club deals and direct investments.
Real estate debt and separate accounts are the fourth and fifth preferred routes to market, respectively.
At the same time, the Survey highlights a shift in style preferences. Investors indicate a move in favour of value added strategies (46.8 per cent) at the expense of both core (39.4 per cent) and opportunity (13.8 per cent). There are significant regional variations with value added investments favoured most in the UK (66.7 per cent), the Nordics (64.3 per cent) and Germany (57.1 per cent). However there is also a strong preference for core in Italy (75.0 per cent), France (66.7 per cent) and Switzerland (62.5 per cent).
‘There are interesting signals in this Survey, many of which reflect general questions about what stage of the cycle we are in. To a certain extent, the intentions expressed in these results feel strangely familiar – and we could be forgiven for identifying patterns that resemble the situation in 2007. However, market composition is very different today and the focus seems much more tilted toward long-term income with the stability that that implies,’ adds Vuong.
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