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Aviva: real estate debt most popular investment among insurers

Among pension funds, 70 per cent of Nordic investors wish to grow their exposure to direct real estate, compared with 53 per cent of pension investors overall, according to Aviva’s survey in its Real Assets Study paper. In fact, demand is strong overall, with insurance groups and pension funds all strongly favouring infrastructure equity and structured finance by expecting to increase investments over the next 12 months.

However, supply is considered a problem. Despite expecting the largest increase in investment to be in real estate debt, 37 per cent of insurers believe supply to be low. Similarly, a quarter believe infrastructure equity and structured finance supply to be constrained.

The barriers are many and varied. Illiquidity is cited as the biggest issue, with large infrastructure and real estate assets traditionally difficult to trade. This partially explains the rise of new vehicles like the UK’s IPSX, an index that seeks to allow institutional investors to trade in and out of listed shares in individual assets.

Investment in European real estate during 2019 was anticipated to be led by Asian investors, according to PricewaterhouseCoopers and the Urban Land Institute’s 2019 Emerging Trends report.

This showed that 69 per cent of respondents to its survey thought investment from Asia would increase, with Japanese pension funds expected to lead the way after the nation’s Government Pension Investment Fund, with $1.2 trillion of assets, was permitted to invest in real estate for the first time.

The weak pound is also expected to drive global investors towards UK infrastructure and real estate assets. However, as our survey shows, the difficulty in benchmarking performance, length of time to deploy capital and even a lack of in-house expertise on alternatives can form other barriers.

Some global investors overcome these by investing in large-scale new social infrastructure projects or place-making, gaining access to prime projects from their inception. In Manchester, Aviva has adopted this approach on behalf of investors at Enterprise City, built on the former site of Granada television studios in the St John’s area. Working with developer Allied London, the aim is to establish one of the UK’s leading digital, media and enterprise clusters.

Once completed, Enterprise City will be over one million square feet of commercial mixed-use space, including workspace, TV and film studios, hotel/leisure and various property infrastructure across ten buildings. It will provide a place for modern industry in Manchester. This approach is one way to satisfy strong investor demand and mitigate the limited supply of real assets.

james.wallace@realassetmedia.com