European investors expected to make the most significant allocations to real estate in 2018

Investors from Europe are expected to make the most significant allocations to nonlisted real estate in 2018, accounting for 57.7 percent of total investment capital into the asset class.

The prediction, made by the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) and the Pension Real Estate Association (PREA), is based on data gathered by the three organizations from 107 investors, seven fund of funds managers and 206 fund managers, whose real estate AUM represents a minimum combined value of €427 billion ($522 billion).

In contrast, North American investors will likely represent 25.2 percent of the real estate investment total over the course of the year, while those from Asia Pacific will account for 17.1 percent of the total allocation.

The Global Investment Intentions Survey has also found that Europe is the regional destination of choice, likely to attract an anticipated 41.2 percent of allocated capital, followed by the Americas (35.2 percent) and Asia Pacific (17.4 percent). However, given that more than half of this allocation will come from Europe, the region could see a net outflow, while the Americas could see a net inflow, of capital.

Within Europe, the U.K. is seen as the top pick for 66 percent of investors, closely followed by France (62.5 percent), with Germany in third place (60.7 percent). Spain, having languished in the ninth spot in 2016, is now the fourth most favored location along with the Netherlands. 33.9 percent of investors said they were attracted to both countries.

Almost nine out of 10 investors expressed a preference for the office sector, with Paris the leading city-sector destination, picked by 55.4 percent of investors as a high target. And even with Brexit uncertainties, 46.4 percent of respondents saw London’s office market as their preferred city-sector combination, partly due to the weakness of sterling.

The survey has also revealed that 75 percent of all respondents see retail as the second most important real estate target, while 73.2 percent viewed residential as their third most preferred area of focus.

Overall, INREV, ANREV and PREA have said that 56 percent of global investors plan to increase their exposure to real estate over the next 24 months, targeting an average 10.2 percent of total capital allocation.

However, concerns remain about the deployment of capital as the well of suitable product is rapidly drying up. Nearly two-fifths of investors cited this as a barrier to investing in nonlisted real estate. The other major obstacle was currency risk exposure, cited by 37 percent of respondents, who were predominantly from North America.

Henri Vuong, INREV’s director of research and market information, says: “With current global allocations to real estate at 1.3% below target, the intended upswing suggests that more capital will continue to flow into the asset class.  This is clearly great news for our industry but, inevitably, the choices about where and when investors place their bets will be the key to determining success.”