Investor Survey: Allocators stand firm

Despite some concern over interest rates, property allocations remain stable, while interest in developments, debt and REITs look to be on the rise, according to IPE Real Estate’s latest investor survey

The latest survey of institutional investors by IPE Real Estate suggests that most investors’ allocations to real estate have remained stable or increased during 2016 (figure 1). It is the same conclusion that has come up in previous years.

It supports the widely held notion that real estate is attracting institutional capital at a time of low-yielding bond markets and economic and political uncertainty.

The proportion that increased allocations (35%) is up slightly from last year (33%), while the proportion remaining stable (56%) is down (62%).

A return to inflation could be changing the situation, with 17% of investors saying they expect interest-rate changes to affect their real estate allocations over the coming 18 months (figure 2). But that leaves a large majority anticipating no impact.

International investments remain a strong focus with more than three-quarters (76%) active globally (figure 3), down slightly on last year (79%).

Again, Europe proved overwhelmingly the most popular investment region at 95% (figure 4), with North America coming in at second, at 53% (note: respondents were able to select more than one answer). This is not surprising given the make-up of survey respondents, with the majority being based in Europe – although it should be noted the second biggest regional group was North American.

Investors’ approaches to real estate looked consistent with last year, with some shifts at the margins. In the 2016 survey, non-listed, closed-ended funds overtook direct investments as the most popular vehicle. This year, closed-ended funds remained the most popular vehicle at 74% (figure 5). Last year’s second most popular approach – open-ended funds – was joint-second this year with direct investments, which came in at third in 2016.

There appears slightly more interest in development, debt and listed investments. All three categories are up on last year

As last year, it is clear that investors have identified value-added strategies as offering the best value. Figure 6 shows 74% selected this strategy as attractive, up from 71% in 2016. Core was second on the list at 56% (down from 64%), followed by opportunistic at 41% (down from 51%). The drop in core and opportunistic seems to have benefited more peripheral strategies. Funding developments (28%), debt investments (38%) and listed investments (28%) were all up – from 18.2%, 29% and 16%, respectively.

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