INREV’s Investor Universe Study, which covers a total AUM of €5.7 billion and a real estate AUM of €509 billion, as at end-2018, consolidates the findings of the seven individual INREV investor universe studies undertaken in late 2018 and early 2019 for Finland, France, Germany, Italy, the Netherlands, Sweden and the UK.
The study comprises the views of 94 investors and 9 funds of funds. Insurance companies and pension funds are by far the most important investors by AUM in each investment universe, but their weightings vary substantially from country to country.
The current allocation to real estate of the surveyed investors stands at 11.2% of AUM on average, a significant increase on the allocation of 8.1% for the same countries in the 2012 study. INREV says this supports the view that allocations to real estate have been increasing over recent years. Investors’ average target allocations were somewhat higher than their current allocations, at 11.9% across Europe, suggesting that allocations could increase still further.
The single most important reason for the investors choosing to hold real estate is for its diversification benefits in the multi-asset portfolio, according to INREV’s study. Risk-adjusted returns and return enhancement are the next most important reasons.
In terms of risk strategy, the investors overwhelmingly favour core assets in their real estate allocations, with 84.9% of AUM in such assets across Europe. This suggests a relatively risk-averse approach to the asset class. The investors are predominantly Europe-focused in their regional allocations. Offices are the most favoured sector among investors across Europe, accounting for 37.9% of AUM overall, with retail next most popular at 22.3% of AUM.
Among possible concerns for investing in real estate at the time of the survey, the macro-economic environment proved the most significant overall, with financial stability ranked second. European real estate investors in the sample are highly committed to sustainability and diversity. Sustainability is steadily rising in importance, both from an ethical and an investment performance standpoint. Asked to rate its importance in their area of business, almost 82% of the real estate investors across the European studies placed it in the two highest available categories.
Lonneke Löwik, INREV CEO, says:
“The significant increase in allocation over the past six years demonstrates the confidence investors have in non-listed real estate as an asset class. This is reinforced by the fact that investors’ target allocations were higher than their current allocations, at 11.9% across Europe, which suggests that allocations could increase further. It’s interesting to note that the increased focus on ESG objectives reflects a growing understanding of both its commercial and ethical importance.”