Pricing remains the key issue in the real estate market for both fund managers and investors: 72% of investors interviewed for the Preqin Investor Outlook: Alternative Assets, H2 2016 view rising valuations as an area of concern, while 51% of fund managers surveyed for Preqin’s July 2016 Real Estate Fund Manager Outlook reported that targeted returns are being reduced due to asset valuation. Correspondingly, the effect of high entry valuations for assets on the eventual performance of a fund was cited as a key issue by 38% of investors. Macroeconomic shocks over the past year have led to 28% of investors naming volatility and uncertainty in global markets as the key issue for the industry in the year ahead.
While nearly half of respondents feel that valuations will not affect the returns from their real estate portfolios in the next 12 months, 37% believe it will have an adverse effect and lead to lower returns, compared with 15% that believe current pricing will achieve higher returns. Valuations for assets are increasing due to high demand for institutional-quality real estate and a parallel rise in direct participation from institutional investors. As such, 57% of respondents feel it is harder to find attractive investment opportunities in the current market than 12 months ago, with only 3% stating opportunities are easier to find.