More than 80 percent of institutional investors plan to increase their exposure to European real estate over the next two years, according to a new study(Add hyperlink to study here) by Aquila Capital, the Hamburg-based real estate asset manager.
Overall, according to Aquila’s findings, 87 percent of institutional investors currently invest in real estate, with the average exposure equating to 11 percent of their portfolio. When asked how they felt about the outlook of the asset class, 78 percent of respondents felt either ‘very positive’, ‘positive’ or ‘neutral’ about real estate, suggesting that institutional investor demand for European property is showing no signs of diminishing.
However, when asked what concerns they did have about real estate, nearly half of respondents to the survey said they were worried about continued economic uncertainty, while 43 percent said they feared assets were at or close to being fully priced. Around a third also conceded that falling yields in prime markets was a cause for concern while 22 percent cited terrorism and the geopolitical uncertainty, particularly in Europe.
The survey also revealed the preferred real estate investment strategy among institutional investors is core, with 58 percent of respondents investing in this type. This was followed by core-plus which was favored by around a third of those surveyed, then value-add and opportunistic strategies, with 27 percent and 15 percent, respectively. When asked which real estate investment vehicles were favored by institutional investors, respondents stated that collective funds, specialist investment funds, direct ownership and funds of funds held the most interest, ranging from 38 percent for collective funds and 23 percent for direct ownership and funds of funds.
“Institutional investor demand for European real estate remains extremely strong and we are likely to see increasing amounts of new capital allocated to this asset class given the risk-adjusted returns it can offer,” said Rolf Zarnekow, head of real estate at Aquila Capital. Zarnekow also believes the Spanish real estate market holds a particular interest for his firm. “We began investing in the Spanish property market two years ago and continue to see a significant increase in demand from international investors seeking to gain exposure to prime residential assets in key cities such as Madrid and Barcelona,” he added.