The Telegraph - Rhiannon Bury - 18 OCTOBER 2016
The world’s institutional investors are continuing to up their allocations to real estate despite dropping confidence in the market.
Average target allocations to real estate among investors will hit 10pc next year for the first time, according to a major new study by real estate advisory firm Hodes Weill and Cornell University, equating to more than €1 trillion.
In 2016, average target allocation to real estate was 9.9pc, rising to an estimated 10.3pc next year. Over the past four years, the target has risen 100 basis points.
But despite the increasing weight investors are giving to property,sentiment has sunk since 2013, with respondents to the study suggesting that the market has peaked.
The study’s ‘conviction index’, which measures confidence among respondents out of a score of 10, fell from 5.6 last year to 5.4 this year, as institutions became increasingly concerned about a potential fall in the value of assets, rising interest rates and geopolitical risks.
This has caused investors to become more defensive in how they allocate capital, with a greater focus on debt rather than equity.
“The long-term low interest rate environment has pushed up valuation of real estate assets to new peaks in some markets without any support from the real economy. Our organisation is protecting our position by investing in real estate debt rather than equity,” one respondent said.
The survey found that, compared to other investment classes, real estate offers relatively stable returns. One investor described it as “one of the better houses on a bad block”.
While North America continues to be the primary destination for investing capital, interest in other geographies has increased substantially. Interest in emerging markets is on the rise, with one in three institutions actively investing.