EXPO: Hotels the big winner for institutional investors

Planned allocations to the hotel sector have almost doubled, while mainstream favorites such as office, retail and residential have fallen out of favor, say institutional investors surveyed by Universal-Investment

The hotel sector is enjoying increasing popularity among institutional real estate investors, according to a survey by Universal-Investment.

The Frankfurt-based asset manager compiled its fifth survey of institutional investor behaviour and the findings pointed to a spike in investment in hotels, while also highlighting a dip in interest in mainstream sectors such as office, residential and retail.

“The high price levels reached in this segment now seem to be causing a certain stagnation of new investments”

– Alexander Tannenbaum

According to the survey, which saw participation from institutional investors with combined real estate assets under management of around €5 billion, planned allocations to the hotel sector nearly doubled to around 14.5 percent.

“Aside from rising prices in traditional real estate sectors – offices, retail and residential – diversification across sectors is a key aspect of investments in such products as hotels,” said Alexander Tannenbaum, managing director of real estate at Universal Investments.

Fellow niche sectors such as healthcare properties and student accommodation are expected to attract an average of 5.2 percent of new investments, a slight increase on previous years.

Conversely, the survey’s respondents said they planned to reduce their in investments in office properties, with the expected share of investments down to 30.4 percent, a dip of 7 percent year-on-year.

The retail sector is also considered less attractive, declining slightly to 21 percent. The same can be said for residential real estate, where investments are only expected to account for 14.5 percent of investor portfolios, down from 19 percent last year. While logistics allocations are also expected to decline slightly to 10.9 percent.

“We have witnessed a veritable renaissance of residential real estate in institutional fund portfolios for a number of years now. However, the high price levels reached in this segment now seem to be causing a certain stagnation of new investments,” Tannenbaum said.

The survey results also reveal that investors plan to maintain their commitments to German real estate. At 46.8 percent, compared to 45 percent the previous year, their domestic allocations have remained largely unchanged while allocations to other European markets have risen to 30.8 percent, compared to 25 percent previously.

North America ranks in third place, largely unchanged at 18.9 percent, while Asia-Pacific is the laggard of the main global regions with a share of just 3.5 percent of investors planning to invest there, down from 8 percent.

As far as emerging markets are concerned, investors currently have no plans to invest in Brazil, Russia, India and China, Universal Investments’ survey revealed. “An analysis of real estate holdings on our platform also shows that institutional investors are seeking greater diversification within established markets,” said Tannenbaum.