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Investors to allocate €22.3bn to European unlisted real estate funds

Institutional investors plan to allocate most of their European real estate investments to non-listed real estate funds (50.5%) over the next two years, as they are seeking expert management, a survey has found.

This was followed by intentions to invest in directly held real estate (31.5%), listed real estate including Reits (17%) and funds of funds (8%).

The respondents named the search for diversification benefits in an existing multi-asset portfolio and gaining quick access to specific sectors as other reasons for choosing to invest in non-listed real estate funds.

Regional breakdown

The study by non-profit organisations Inrev, Anrev and Prea provides insight into expected trends in the real estate investment industry in 2020.

Of a total of €88.5bn in planned investments this year, 61.1% is expected to come from Europe, 19.3% from North America and 19.4% from Asia Pacific.

Investors said they intend to allocate €22.3bn to unlisted funds and €41.3bn into some type of non-listed real estate vehicle, while funds of funds planned to invest €9.6bn in 2020.

When asked about the most challenging obstacles when investing in European non-listed real estate funds, the respondents pointed to the availability of suitable products and current market conditions.

Taking on risk

Another finding of the survey is that investors seem to be taking on greater investment risks.

Lonneke Löwik, Inrev’s chief executive, commented: “The continued lower interest rate environment looks like being an important driver for 2020, as investors seek returns from real assets including real estate; and the shortage of core assets is driving investors further up the risk curve.”

The study found a “notable shift toward opportunity” as an investment strategy among institutional investors, even though core remained their favoured style for current allocations.

Opportunity strategies are a rising trend, the organisations said, “with investors having, on average, allocated more than 12% of their total real estate assets under management to opportunity strategies in 2019 – an increase of almost 50% compared with the previous year”.

North America is driving this trend, with 37.3% invested in opportunity strategies, followed by Asia Pacific with 7.2% and Europe with 5.4%.

Löwik continued: “These findings point to a curious mix of investor sentiment.

“Interestingly, while investors in North America have long had an appetite for opportunity style investments; their counterparts in Asia Pacific, who have tended to be more cautious in the past, are now also slowly moving up the risk curve.”

Background

A total of 140 interviewees worldwide (125 investors and 15 funds of funds) responded to the survey.

Those with a current allocation to Europe have a minimum of €351.3bn of assets under management in European real estate, according to the organisations.

Inrev is the European Association for Investors in Non-Listed Real Estate Vehicles, a non-profit organisation based in the Netherlands, Anrev is the Asian Association for Investors in Non-Listed Real Estate Vehicles, a non-profit organisation based in Hong Kong, and Prea is the Pension Real Estate Association, a non-profit trade association based in the US.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.