Institutional investors plan to increase their allocations to the real estate asset class despite the downturn in the market, according to a survey carried out by industry body Inrev. Over 70% of the institutional investors who responded to the survey said they intended to increase their allocation to real estate in the medium term, mainly through non-listed vehicles, but also listed property companies.
Institutional investors plan to increase their allocations to the real estate asset class despite the downturn in the market, according to a survey carried out by industry body Inrev. Over 70% of the institutional investors who responded to the survey said they intended to increase their allocation to real estate in the medium term, mainly through non-listed vehicles, but also listed property companies.
Investors' continuing confidence in real estate suggests that the challenging market conditions are perceived as a general phenomenon across investment markets stemming from the financial crisis. This can also be derived from the survey results where 70% of the investors indicated that the case for real estate in comparison to other asset classes had remained the same over the past year, while 20% even felt that the case for real estate had improved.
'I think this indicates that the long-term trend of increasing institutional allocations to real estate is still intact despite the impact of the credit crunch, although the survey also shows evidence of technical changes in investment strategy in the short term in the current difficult market,' said Marie-Claude Gleize, director for Non-listed Real Estate Funds and Active Property Investments at French investor Caisse des Dépôts.
A total of 28 institutional investors and 16 fund of funds managers responded to the Inrev Investor Survey on investment allocations.
More than 70% of investors said that the real estate 'denominator effect' was causing them to raise their allocations to other asset classes in the short term at the expense of real estate. This denominator effect is where property increases as a proportion of a total investment portfolio due to relative declines in the value of other asset classes such as equities and bonds. The denominator effect is not yet, however, impacting on non-listed real estate funds for over 70% of the investor group surveyed, although 25% of investors did say they were considering reducing their fund holdings due to this phenomenon.
Market conditions are also having an effect on investors' management processes. Nearly half said that the time taken to make a decision to invest in a non-listed real estate fund had increased compared with a year ago, although most fund of funds managers said this had remained unchanged. The main reason for the extended decision making was a longer due diligence process.
The credit crisis also appears to have tilted the balance of power in negotiations over fees and terms in favour of investors and fund of funds managers, relative to fund managers. Half of the fund of funds managers polled said they now required more detailed reporting from the fund managers they have invested with, compared with just 29% of investors.