Investors set to increase allocations to real estate in 2018, says survey
Fifty six per cent of global investors plan to increase their exposure to real estate over the next 24 months, targeting an average 10.2 per cent of total capital allocation. This would amount to a minimum commitment of just over EUR51 billion this year.
Data from the global Investment Intentions Survey 2018, published today by INREV, ANREV and PREA, suggests 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 per cent of total investment capital in 2018. North American investors will likely commit 25.2 per cent, while those from Asia Pacific are forecasting 17.1 per cent. Europe is also the regional destination of choice likely to attract an anticipated 41.2 per cent of allocated capital, followed by the Americas (35.2 per cent) and Asia Pacific (17.4 per cent). 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 per cent of investors, closely followed by France (62.5 per cent), with Germany in third place (60.7 per cent). 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 per cent of investors.
Fifty per cent 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 per cent) and Germany (50 per cent).
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 per cent in 2017 to 18.8 per cent this year; and a corresponding drop in preference for core – down to 31.8 per cent. Investors seem to be shifting marginally up the risk curve in the hunt for assets that might deliver better returns.
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 per cent of investors. Even with Brexit uncertainties, the weakness of sterling has boosted the allure of London with 46.4 per cent 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 per cent of respondents.
Despite the recent general turbulence in retail, real estate investors remain attracted to the sector. In Europe, 75.0 per cent 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 per cent 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 per cent) 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 per cent 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 (pictured), INREV’s Director of Research and Market Information, said: “With current global allocations to real estate at 1.3 per cent 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."