Property allocation dip flags up investor difficulties: INREV

Investors’ appetite for real estate has diminished globally owing to market uncertainty, according to the 2024 Investment Intentions Survey which is published jointly by ANREV, INREV and PREA.

The gap between average current allocations and target allocations across Europe, Asia Pacific and North America, has decreased for the third consecutive year according to the survey which explores aspirations for investment over the next two years, with a focus on non- listed real estate funds.

Iryna Pylypchuk.

Although the current average allocation to real estate globally, on a weighted AUM basis, is 10.6%, slightly above the average target allocation of 10.4%, INREV explained that the apparent over-allocation is mostly attributable to European investors whose average allocation is 10.5%.

European investors are the most bearish on expected allocations and 43% expect a decrease while only 16% expect an increase. Asia Pacific investors are the most bullish and 41% expect allocations to increase, but none expect a decrease.

INREV director of research and market information Iryna Pylypchuk said that the survey, which this year is based on data from 90 respondents globally with a combined total AUM of €830 billion, has highlighted difficulties faced by investors.

One implication of the difficulties experienced by property investors is that while 59% of investors globally have set a net zero target, almost 60% of these have identified a time horizon beyond 2040 – adding a decade to the expected 2030 target date. “This is likely the result of current market conditions and the costs associated with meeting net zero targets,” the report states.

The current situation is also providing openings and Pylypchuk said: “We are entering a window of potential mispricing and repositioning opportunities be it through a bottom-up asset selection, by exploring market bifurcation or through private equity play as cash deprived players struggle to service their debt.” 

The survey indicates a shift away from core strategies with 78% of investors looking to deploy capital in Europe in 2024 seeking higher-risk strategies. While 55% now prefer value added strategies, only 21% of investors have a preference for core – the lowest share recorded since 2008. There was a similar shift after the global financial crisis of 2008, INREV pointed out.

Another change revealed in the report is that the UK has regained its position as Europe’s preferred investment destination, after six years “in the wilderness”, with Germany and France in second and third places respectively.

After five consecutive quarters of negative capital growth, the UK All Property “pricing correction” since the end of Q2 2022 stands at -22.77% , in comparison to just -13.49% for Germany, and -14.19% for France.

Meanwhile residential real estate has become Europe’s preferred sector for the first time since the survey was launched, rising from 65% in 2023, to 90% in 2024. This was followed by industrial/logistics, which rose from 46% in 2023, to 87% in 2024.

The results also reveal a substantial increase in investor preference for student accommodation and healthcare in Europe, rising from 15% to 45%, and 19% to 35% between 2023 and 2024, respectively. Despite a relatively small market size, student accommodation and healthcare are closing the gap with the office sector, which fell into third place with 52%, down from 69% in 2023.

On the other side of the spectrum, interest in retail plummeted to just 16% compared to the 2023 results (31%), leaving this sector as Europe’s least favoured in 2024.

Real estate debt maintained its position as the preferred access route into European real estate for the third consecutive year, with an 81% net increase. Alongside debt, joint ventures and club deals category were the only two other access routes into European real estate expected to see a net increase in allocations over the next two years.