Half of institutional investors plan to boost real estate holdings

Half of global institutional investors are anticipating an increase in their allocations to real estate over the next two years, according to the Pension Real Estate Association’s 2019 investor intentions survey.

The survey, which included responses from 144 global institutional investors with assets under management totaling $817.5 billion, found pension funds had the second-highest allocation to real estate, topped only by endowment funds.

Among all survey respondents, the average allocation to real estate was 10 percent, while the average target allocation was slightly higher, at 10.4 percent. However, 9.3 percent of respondents said they expect to decrease their real estate allocations over the next two years.

The top factor attracting institutional investors to real estate, according to the survey, was diversification of their overall multi-asset class portfolio, followed by enhancement of returns and income returns.

As for location, European investors had the highest allocation of their overall portfolios in real estate, although when measured by actual assets, North American institutional investors owned the most. Of all assets held, European investors owned the most (49 percent), followed by the United States (33 percent) and Asia Pacific (10 percent). The survey also found investors showed a significant home bias when it comes to current real estate holdings.

In terms of type, core real estate is by far the most popular, accounting for 79 percent of real estate assets globally, followed by assets described as value-add (13 percent) and opportunity (9 percent). However, European and Asia Pacific investors said they favor core more heavily, at 83 percent and 90 percent of holdings, respectively, compared to North American investors that had a 67 percent allocation to core.

As well, North American and European investors more commonly invested directly, holding 30 percent and 46 percent of their real estate portfolios that way, respectively. For Asia Pacific investors, open-end funds were popular, making up 39 percent of their real estate portfolios. However, they’re much less popular with European (9 percent) and North American (12 percent) investors.