UK-based investors are investing higher proportions of assets in the real estate asset class when compared to their global peers. Just 27% of UK-based investors in real estate have allocations of less than 5%, compared with 39% of all other investors. Higher proportions of investors have allocations above 5% and 10%.
UK-based investors have a strong preference for lower risk core vehicles; 88% of investors exhibit a preference for these funds, representing a notable five percentage point increase in just under two years. However, appetite for higher risk opportunistic and value added vehicles has also increased since July 2013. Twenty-nine percent of UK-based investors have a preference for opportunistic funds and a further 35% favour value added vehicles, signalling seven and five percentage point increases over the same time period respectively.
In terms of geographic preferences, investors based in the UK have a strong preference for private real estate funds targeting European assets: 93% have a preference for Europe-focused funds. UK-based investors are showing declining interest in Asian markets, with only 17% stating a preference for these markets, five percentage points less than two years ago. Fourteen percent seek to gain exposure to North American markets, while just 3% of UK institutions have a preference for South America-focused real estate funds.
When looking at the size of allocations to real estate, Preqin Real Estate Online service shows that UK-based institutions are more likely to hold real estate portfolios greater than £100mn when compared with investors based elsewhere. Sixty percent of non-UK-based real estate investors have allocations under £100mn, compared to only 52% of UK-based investors. Many UK-based investors have long track records investing in real estate, built over a number of years, which may explain why many investors hold larger allocations than are typically seen elsewhere.