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Investor Appetite for Niche Real Estate

by Henry Morgan

  • 27 Feb 2017
  • RE

A growing area in the market, niche real estate investment can play a significant role in investors’ portfolios; 17% of real estate investors profiled on Preqin’s Real Estate Online maintain a preference for niche property.

As niche real estate is a relatively nascent industry, the vast majority of investors that seek investment in niche assets are located in the more traditional markets of North America and Europe; North America is home to the more than three-quarters of the global niche investor population, while Europe represents 19%.

A wide variety of institutional investors are attracted to niche real estate; however, as shown in the chart above, niche property is favoured by real estate funds of funds: 57% of real estate fund of funds have a preference for niche real estate.

Pension funds also have relatively high levels of participation in niche real estate, although public pension funds more so than their private sector counterparts (278 vs. 272 respectively), despite a larger proportion of private sector pension funds recording a preference for the strategy (52% vs. 36% respectively). Only 17% of sovereign wealth funds active in real estate state a preference for niche property, although this is partly due to the restrictions placed on many firms and the scale on which they need to deploy capital.

Niche property remains an emerging segment of the real estate asset class across many regions, despite the property type being on the radar of many high-profile institutional investors. For example, the $96bn public pension fund Ohio Public Employees' Retirement System has stated that it will focus on niche real estate over 2017 as it seeks property types out of favour with other investors in a bid for outsized returns. With only 5% of niche real estate investors located outside North America and Europe, the sector could grow substantially in future, particularly in areas where property markets are still developing.

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