Higher real estate allocations to run into trillions

Increases in global real estate allocations by institutional investors are set to run into trillions of US dollars, according to Fidelity International.

Minor allocation increases of between 1% and 2% in the next two to three years from European and Asian institutions alone will translate into $450bn (€397bn) of new capital targeting the asset class, according to research by the investment manager. The figure is almost as much as the total turnover in commercial real estate investment last year.

Two major structural shifts – broad demographic changes and the rapid rise of the Asian economy – are accelerating growth to higher levels, Fidelity said.

Iryna Pylypchuk, senior European real estate analyst, said: “It is certainly not a question of ‘if’, but ‘when’ and ‘how much’ more capital will flow into the asset class, and we envisage some significant implications for real estate markets going forward.

Pylypchuk said a “second globalisation phase” was underway, with influence of cross-regional capital set to broaden this year to beyond the top-20 global city markets and core sectors, leading to “pronounced escalations in direct real estate investments, as well as via the indirect routes”.

She said: “The bottom line is that once this second globalisation wave is in full swing, it will bring significant pricing implications for real estate as an asset class.”

Increased allocations will, Fidelity said, bring an even greater shift towards international investing.

While Europe will remain the key recipient of cross-regional flows in the short to medium term, the US market is evolving fast and set to benefit from on-going globalisation.

 

Source: I&PE Real Estate