INREV: investors across Europe are enlarging the boundaries of what constitutes ‘real estate’

Investors across Europe have redefined the boundaries of what constitutes real estate, albeit at differing paces, with a growing number enlarging the asset class to include alternative sectors as well as social infrastructure.

According to INREV’s study, the trend towards redefining the boundaries of the asset class has gone furthest in the UK, as real estate is managed as part of another investment category for over 40% of the study sample of investors. At the other end of the spectrum, more than 90% of the German investors keep real estate separate.

‘Alternatives’ is the most common home for real estate if it does not stand alone – this particularly applies in Italy, Sweden and France. Whether or not it is treated as part of a broader asset category, the current allocation to real estate for the surveyed investors stands at 11.2% of AUM, a significant increase on the average allocation of 8.1% for the same group of countries that was recorded in INREV’s Investor Universe Comparison Study for 2012.

In its Investor Universe Study, INREV wrote:

“This confirms the widely held perception that asset allocations to real estate have been increasing over recent years. This view is reinforced by the fact that investors’ average target allocations in the 2019 study were somewhat higher than their current allocations, at 11.9% across Europe, suggesting that allocations could increase further.”

There is a broad range of average allocation levels among European countries, with Italian investors having the highest current real estate allocation of those surveyed, 17.7%, while French investors have the lowest allocation at just 5.5%. Italy is the only country where target allocations on balance are below the current level, as a number of

Italian investors are seeking to reduce their exposure, which was historically high but now faces regulatory restrictions. The French survey sample is dominated by life and composite insurance organisations, which have relatively low allocations to real estate, averaging just 4.4%.

This contrasts with the situation in Germany, where life insurance investors also dominate, but the overall real estate allocation of 14.3% is the second-highest among the seven countries. Among the asset classes that the investors access in their home market, it is notable that many now hold infrastructure investments – more than four-fifths of those surveyed in Germany, for example – a trend that could accelerate the movement towards the creation of larger asset allocation buckets of real or private assets in the future.

In its Investor Universe Study, INREV wrote:

“Given the wide range of asset types that the investors allocate between, both domestically and further afield, it is not surprising that real estate allocations tend to be reviewed relatively frequently. Although real estate is regarded as a medium-term investment with a 5 to 20-year time horizon for the great majority of the investors across Europe, the level of allocation to the asset class tends to be reviewed much more frequently than this.”

Based on the study samples, Dutch investors appear to take a somewhat longer-term perspective on real estate than those elsewhere in a Europe, with both a longer time horizon and less frequent review cycle for the asset class. This difference may be explained by the dominance of pension funds among Dutch investors, as they tend to have a longer-term outlook than insurance investors.

james.wallace@realassetmedia.com