Investors are planning to pump €42.5bn into real estate globally this year, a 22% increase on 2104 according to INREV’s annual survey of their intentions.
INREV’s survey canvassed 337 investors, fund managers and fund of fund managers who have an aggregate €1.6tr of real estate assets under management. Nearly 46% are planning to increase their allocations to the sector, with the average rising to 11.3% from 10.8%. Asia-Pacific investors are the keenest to build up their portfolios.
The biggest chunk of this capital – 45% or €19.2bn – is targeting Europe, with 35% aimed at the US and 17% Asia-Pasific. Fund of fund managers are also looking to channel in a further €4.6bn, half of it to Europe.
Germany, UK and France are the top three European destinations this year. This ranking is the same as last year’s, and reflects the continuing focus on the continent’s larger and more mature markets. Italy has moved up three places and Turkey has dropped out of the top 15 altogether.
Unlisted funds are the preferred route into European real estate over the next two years, with 44% saying they intend to increase their allocations to these vehicles; 23% are also expecting to invest more in real estate debt.
However, margins have moved in substantially since last year and this may frustrate some investors. “We invested quite a bit in real estate debt last year but find it difficult to place money at the return required,” said Christopher Morrish, European head of GIC Real Estate. “The junior and senior space has become crowded, margins are lower, and we were priced out of the market in the UK. We moved to other markets but they had also moved.”
Overall, offices have taken the top spot from retail this year for sectoral preference. Industrial/logistics comes third, pushing residential into fourth place. And, if ranking combinations of sectors and locations, German retail and German offices come first and second – the first time since 2009 that the top two spots are awarded to sectors in the same country.
It’s also “risk-on” this year, with more investors, 18%, being prepared to take on opportunistic-style funds, and the remainder evenly split between core and value-added. Last year, half plumped for core and only 7% for opportunistic.
Dennis Lopez, AXA Real Estate’s global investment officer, espoused the value-added strategy and highlighted developing-to-core. “The markets are generally not overbuilt and there’s a 150bps premium.”
Henri Voung, INREV’s director of research, noted that the last time investors were this keen on opportunistic and value-added investments was in 2007. “Is it the calm before the storm?” she asked.