Returns from real estate will fall over the next 12 months, according a survey of investors by data provider Preqin.
It found 23% of investors expect the asset class to perform worse in the next 12 months.
This is likely due to high valuations putting pressure on pricing, the data provider said. Some 29% of the 177 respondents considered real estate assets to be overvalued and said they expect a pricing correction next year.
Meanwhile, four out of five (82%) investors surveyed ranked asset valuations as the biggest challenge to future returns.
This was followed by 52% citing competition for assets as a challenge.
Therefore 27% of investors expect to place less capital into real estate than they did in the previous 12 months, despite 83% having said that real estate had met or exceeded their expectations during that period, Preqin reported.
The firm added that investors putting money into real estate are targeting value-add (46%) and opportunistic (44%) funds, up from 37% and 29% respectively at the end of 2018.
Justin Hall, real estate product manager at Preqin: “The real estate market is facing a challenging moment. With so many active firms in the market, and so much capital waiting to be put to work, prices have risen to record levels.
“This is making it harder than ever for fund managers to find assets they can add value to, and seems likely to depress future returns. In turn, this is pushing investors to focus more on higher-risk value-added and opportunistic strategies as they seek to preserve future yields. The long-term health of the asset class seems secure but we may have said goodbye to the days of standout uncorrelated returns.”
To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette
