Institutional investors in Sweden show a “marked preference” for the domestic market in their real estate investments, according to INREV’s Investor Universe Sweden Survey 2011.
Less than 20 percent of the total real estate exposure of Sweden’s institutional investors is held outside Sweden, the organisation said. By contrast, investors from the Netherlands and Germany have 57 percent and 35 percent respectively of their total real estate investments in non-domestic markets. Only the UK has an even smaller exposure to non-domestic real estate investments than Sweden with 12 percent.
INREV said the very strong domestic focus could be partly explained by the experience of Swedish investors in the 1980s who saw real estate investments abroad plummet in value. “As a result, investors are now much more cautious about non-domestic markets. Sweden’s relatively strong domestic economy also adds to the desire to stay at home,” said Lonneke Löwik, INREV’s director of research and market information.
The dominant domestic trend in Sweden is even starker for smaller investors, and the survey suggests that the current vogue for domestic direct real estate is only set to become more prominent and enduring especially among Swedish life insurance funds.
Institutional investors see little advantage in portfolio diversification through non-listed real estate investments. On the contrary, they view the country’s regional economic differences and the number of different real estate sectors within Sweden as providing plenty of opportunities for a diversified portfolio without venturing abroad, said the study.
More generally, respondents to the survey expressed reservations about non-listed real estate investments owing to a perceived lack of control and influence over the investment and high cost. However, several investors indicated that they would consider a non-listed approach as part of their overall investment strategy in the future, citing access to expert or specialist management as a key benefit.
Currently, non-listed real estate makes up just 10 percent of Swedish investors’ portfolios on average. This is in sharp contrast to Dutch institutional investors, for example, who have 34 percent of their total real estate investments allocated to the non-listed sector.
The Swedish real estate market is estimated to grow by almost 20 percent over the next three years despite the fact that investors do not expect to meet all their real estate targets.