Investor commitments to real estate funds may decline over the next 12 months, as more than a quarter (27%) of surveyed investors expect to place less capital in the asset class than they did in the previous 12 months, according to a new global report from alternative assets information specialist Preqin.
The research suggests that as distributions fall yet further, investors may feel the need to scale back the pace of new commitments.
As with other private capital asset classes, asset valuations rank as the biggest challenge for return generation among real estate investors (cited by 82% of those surveyed).
Meanwhile, competition for assets is a challenge for 52% of investors. With so many active firms in the market and with prices at record levels, it is harder than ever for fund managers to find assets they can add value to, Preqin notes.
Value-added funds remain the most sought-after strategy among real estate investors, and 46% feel they currently offer attractive investment opportunities. Investor appetite for opportunistic funds is on the rise again, having dropped off over the past year: 44% of investors are planning to target the strategy in the next 12 months, up from 20% in June 2018 and 29% in December 2018.
As with previous years, the established markets of the US and Western Europe (excluding the UK) are viewed most favourably among investors: 57% and 52% believe they are presenting the best opportunities at present.
Emerging Asia is the clear favourite among real estate investors targeting emerging markets in the year ahead: a third of investors named each of China and India as presenting the best opportunities, and 31% feel the rest of Emerging Asia is attractive in the present climate.
The data emerged as part of a larger report into alternative asset dynamics worldwide, including non real estate investments. In this research, Preqin discovered that 74% of surveyed investors believe that equity markets are at a peak, up from 61% that said the same at the end of 2018.
Just 6% said that they believed markets are expanding, down 15 percentage points in six months. Alternative assets will be a vital part of many investors’ approach to weather a market event, the report concludes.