Real estate remains a hot ticket for global investors

Investment in real estate looks set to continue rising in 2015, reflecting market stabilisation, says the global Investment Intentions Survey from industry associations INREV, ANREV and PREA. 

Nearly 46% of investors have declared their intention to increase allocations to global real estate, with €42.5 billion being targeted at this asset class in 2015. Last year, market participants planned to allocate just under €35 billion. Figures from the latest INREV Investment Intentions Survey, published today, indicate ongoing interest in real estate from investors in Europe, Asia Pacific and North America. Total allocations are anticipated to rise to 11.3% from 10.8% currently.

This trend is being driven largely by investors from Asia Pacific who expect to increase current allocations from 9.8% to 11% this year, while their counterparts in North America and Europe will increase allocations from 8.6% to 9.1% and from 12.3% to 12.6%, respectively.

Confidence and consistency
As in previous years, investors display a preference for investing in domestic markets. Currently in Asia Pacific 67.7% of investors say they invest in their own region. A similar approach is adopted by 77.5% of investors in Europe and 68.5% of investors in North America. 

However, there are encouraging signs that some investors are moving further afield. Investors from Asia Pacific, for example, are demonstrating a desire for geographic diversification with an increase of around 20% planning to invest outside their region and more than half of them targeting Europe and North America. The Survey indicates that the single most important reason for investors to invest in real estate remains diversification, rated 4.2 on a scale of 1-5*, followed by income return (3.7) and risk-adjusted performance and enhancing returns (3.6 respectively).

A considerable volume of capital (45.1% or €19.2 billion of the anticipated total allocation) is pointed toward Europe, with Germany, UK and France still ranked as the top three investment destinations for all investors. Interestingly, Italy has attracted attention, jumping three places from last year to become the eighth preferred target destination. Meanwhile, Turkey has dropped off the list of top-15 target destinations.

In terms of sectors, investors have identified offices – and German offices in particular – as a key target, displacing German residential, which occupied one of the top-10 country/sector slots in 2014. Alternative sectors are gaining in popularity. Just over 20% of respondents highlight examples such as hospitality, student housing, healthcare, real estate debt and parking as desirable investment targets.
“This year’s Survey is broadly consistent with the predicted and actual investment trends we’ve seen over the past couple of years: it’s a case of investors chasing dependable returns through real estate in an otherwise unexciting investment landscape. But we can’t ignore the cyclical nature of real estate and what the Survey shows us could also be reflective of a market enjoying a period of calm before the storm,” commented Henri Vuong, INREV’s Director of Research and Market Information.

Flight to non-listed 
For a significant proportion of investors (44.2%) – particularly smaller investors and those based in Asia Pacific (54.5%), France (50%), the Netherlands (50.0%), Switzerland (57.1%) and the UK (50%) – non-listed real estate funds are seen as the preferred route for investing in Europe. Together, joint ventures and clubs are seen as the next most favoured investment vehicles for investors at 41.4%. And while larger investors continue to favour direct investment, this option appears to be losing its appeal. 

Investors ranked access to expert management as the most important reason for investing in nonlisted real estate funds (at 51.5%), followed by international diversification (at 37.5%).

Risk and reward 
There’s an increasing focus on risk with 41.4% of investors selecting value added as their preferred investment strategy. This puts value added on a par with core, for which a further 41.4% of investors express a preference. Fund managers hold a strong view that investors will continue to move up the risk curve by seeking value added strategies. While opportunity funds remain lower down most investors’ lists of preferred investment strategies they have nonetheless seen a significant gain in popularity, rising from 7.1% in 2014 to 17.8%.

The balance in favour of value added and opportunity funds versus core funds is greater among investors in Europe and North America than among those in Asia Pacific. Almost 74% of investors express a preference for closed end over open end fund structures. They also prefer seeded pooled investments to blind pools, as well as funds with a GAV of up to €500 million rather than those above €500 million. 

“The insights from this year’s global Investment Intentions Survey could be pointing toward potential structural shifts in the real estate industry. In addition to the growing tilt towards risk and an apparent blurring of the lines between the investment strategies adopted by investors, fund of fund mangers and fund managers; there’s a subtle hint that the conditions may exist for the creation of a secondary market for trades. As in previous years, the Survey offers plenty of food for thought,” concluded Matthias Thomas, CEO of INREV.

Source: Property Magazine