Patrizia: institutions expect a strong pick-up in investments

What a difference a year makes: two-thirds of institutional investors expect a strong pick-up in real estate investments over the next two years, according to Patrizia’s annual Client Survey 2024 results which have just been released. Last year the same percentage of respondents had expected a decline in market activity.

The survey, which saw over a hundred institutional investors participate, also found that they are increasingly focused on energy transition and digitalisation, and that logistics and residential continue to be the asset classes of choice in real estate.

“Similar to our own investment view, we see a growing sentiment that investors are beginning to align their portfolios with the key megatrends of digitalisation, urbanisation, energy transition, as well as the living transition, which all represent attractive investment opportunities,” said James Muir, head of investment division, Patrizia. “Most investors also expect significantly more investment activity in real estate, in contrast to last year’s sceptical outlook.”  

More than half of the respondents indicate that they will increase their allocations to investments in the energy transition, such as renewables and alternative energy solutions, in the next five years, while over 40% are aiming to invest more in digitalisation, such as data centres or fibre-optic networks.

“Institutional investors are seeking opportunities to get exposure to investments in smart real asset solutions with the convergence of real estate and infrastructure now occurring almost everywhere, be it digital infrastructure, mobility, connectivity, the transition to renewable energy or modern, service-oriented living,” said Muir.

Institutional investors are focusing on logistics and residential for portfolio adjustments, with 21% of respondents planning to expand their real estate allocations to logistics the most and 17% aiming to increase allocations to residential the most in their real estate portfolio.

The trend of expanding capital allocation to infrastructure continues from previous years, as 70% of respondents plan to increase their infrastructure allocation over the next five years.  Investors are also optimistic about the infrastructure market, with 77% expecting an increase in transactions over the next two years and more than 70% expecting further improving investment offerings. The key asset classes in infrastructure are renewable energy and digital infrastructure.

“The combination of smart infrastructure and real estate investments is key for long-term investment success,” said Mahdi Mokrane, head of investment strategy and research, Patrizia. “Both asset classes allow investors to benefit from the megatrends of our time that are driving the next growth phase of our industry.”

The integration of sustainability criteria in the investment process continues to grow. 73% surveyed state that ESG criteria are an important part of their investment process, up from 60% two years ago. In tracking ESG, investors put a focus on energy consumption, which 71% aim to track across their real estate and infrastructure portfolios. However, 59% see a lack of data quality and standardised data as the biggest challenge for more sustainable investments, with changing regulatory requirements the second biggest challenge.