The H1 2013 edition of Preqin Investor Outlook: Real Estate found that property remains an important part of many sophisticated investors’ portfolios and almost half have a target allocation of 10% or more of their total assets. Most investors plan to maintain or increase their allocations, with only a small proportion of investors expecting to scale down their exposure to the asset class.
An examination of the proportion of investors that are at, above or below their target allocations to real estate suggests that institutions are making more real estate investments, with a smaller proportion below their target allocations than were under their targets a year ago. This could also be a reflection of improving values of investors’ property portfolios. In December 2011, 66% of all real estate investors were below their target allocations to real estate; this decreased to 57% in December 2012. The proportion of real estate investors that are at their target allocations increased from 20% in December 2011 to 25% in December 2012 and the percentage of investors above their target allocation rose from 14% to 18% over the same time period. Nevertheless, with more than half of investors below their targeted level of exposure, there remains a significant amount of capital which may be allocated to the asset class in the coming years.
Furthermore, with 26% of investors allocating 10% or more of their assets to real estate and 49% targeting this level of exposure, it is clear that real estate forms an important part of many institutions’ investment portfolios. Of institutional investors active in real estate, just 9% have a target allocation of less than 5% of their total assets.
Most investors remain committed to the real estate asset class in the mid to long term. Half of all real estate investors surveyed expect to maintain their allocations to the real estate asset class in the next 12 months and 52% expect to maintain their allocations in the longer term. Encouragingly for fund managers, 43% of real estate investors surveyed expect their real estate allocations to increase in the next 12 months, with 39% expecting to increase their allocations in the longer term.
Only 7% and 9% expect to decrease their allocations in the next 12 months and the longer term respectively. This shows that a degree of confidence is returning to the real estate investor community, with most remaining committed to the asset class in the long term.