The H1 2013 edition of Preqin Investor Outlook: Real Estate found that many private real estate investors appear to be moving up the risk-return profile spectrum in 2013, with a greater proportion targeting core-plus and value added funds in the next 12 months.
The proportion of investors targeting core-plus funds has increased significantly, from only 26% of investors targeting the strategy in the 12 months following December 2011 to 45% of investors in the 12 months following December 2012. The proportion of investors targeting value added investments has also increased, from 47% in the 12 months following December 2011 to 55% in the 12 months following December 2012, making value added the most commonly sought strategy by investors in 2013. These increases in appetite for relatively higher risk strategies may be a result of a desire to generate stronger returns than those targeted by core funds, or because investors believe core assets are becoming overpriced.
However, core is still a commonly sought strategy in the next 12 months, with 45% of investors targeting core real estate funds. This is only a slight decrease compared to the 47% of investors which were targeting this strategy in the 12 months following December 2011.
Perhaps most notable is the marked increase in the proportion of investors seeking distressed and debt vehicles over the past year. A significant 34% of investors were seeking vehicles following a debt strategy in the 12 months from December 2012, compared to just 8% in the 12 months from December 2011. Many investors have cited the opportunity to generate strong returns with a lower level of risk as one of the reasons for investing in funds following a debt strategy.
In terms of the geographies targeted by investors, a significant proportion of institutions are targeting investments in their own geographical area in the next 12 months. Most investors typically make more investments in their own region due to their greater knowledge of their local markets. Although a significant 83% and 85% of North America- and Asia-based investors respectively are targeting investments in their own region in the next 12 months, only 69% of Europe-based investors are targeting investments in Europe over the same time period.