Industrial/logistics is now officially investors’ top choice when investing in Europe. According to INREV’s 2022 Investment Intentions Survey 71% of investors will be allocating funds to the sector ahead of offices and residential both of which registered 69%. Retail climbed back up from fifth to fourth place at 36%.
INREV said that while the office sector is the largest component of existing real estate portfolios, it is far less popular for new investment with only 20% of capital likely to be deployed into the sector this year globally because of the continued uncertainty concerning the future of office working.
Unsurprisingly, however, among the mainstream sectors, retail is the least popular for new investment, accounting for only 8% of planned deployments overall in 2022.
The survey, which INREV produces in conjunction with ANREV and PREA, also found that institutional investors plan to invest at least €68.2 billion in global real estate this year, with 61% of investors planning to increase their allocation to property during the next two years.
European investors are the source of most of the new capital identified, while 26% will emanate from North America and 22% from Asia Pacific.
In 2022, 41% of planned capital deployment is targeting Europe, compared to 39% heading for North America (the United States only) and 19% to the Asia Pacific.
Funds of funds further raise the total
Funds of funds expect to commit a further €8.5 billion bringing the total to €76.7 billion of which €31.5 billion will target European real estate during the next two years.
Globally, 62% of investors surveyed said the covid health crisis would not affect their investment plans for 2022.
While the 38% that did say their plans would be affected by covid is nevertheless significant, INREV said European investors are the least concerned, while nearly half of investors in Asia Pacific and north America said it would affect them in 2022.
Of the total expected volume of institutional investments this year, 41% is earmarked for non-listed real estate funds and 30% is planned for other non-listed real estate vehicles.
There has also been a shift in risk appetite. While historically investors have allocated most of their capital to core strategies, which account for 83% of institutional portfolios, there has been a shift in preference toward value added. Over half (57%) of respondents indicated a preference for value added, particularly in Europe. INREV sad this is the highest it has been since 2008.
Only 30% preferred core strategies, which is down from last year’s 50%. Opportunistic strategies are preferred by 13% of respondents targeting European real estate.
Of the investors seeking opportunities in Europe, France (74%), Germany (71%) and the UK (69%) are the top three preferred destinations. All three countries scored lower than last year, reflecting greater geographic diversity of investor preferences, but France’s score is considerably higher than its long-term average of 68%.
Spain, the Netherlands, Denmark, Finland and Norway scored higher than in 2021 and above their long-term averages. Much of the appetite for these countries comes from European investors, while their counterparts in North American and Asia Pacific continue to favour the UK and, to a lesser extent, France and Germany.
There is a significant increase in the preference for Spain which rose from 45% in 2021 to 62% in 2022, putting it in fourth place overall behind the UK.
ESG is set to be a key factor in investment decisions in 2022 and 68% of investors globally consider a net zero carbon commitment to be an important feature when investing in a non-listed real estate fund. Meanwhile, 86% of investors pay close attention to a fund’s environmentally and/or socially responsible investments.
“The 2022 Investment Intentions Survey is a powerful reminder of the investment appeal of real estate as an asset class, with the diversification benefit it offers in a multi-asset portfolio remaining the key driver of growing allocations,”, INREV’s director of research and market information Iryna Pylypchuk said. “The latest results reveal intriguing shifts towards value added strategies as well as the growing importance of ESG considerations.”