Institutional investors’ target allocation to real estate has topped 10% for the first time this year, according to a report by Hodes Weill & Associates and Cornell University.
The annual Institutional Real Estate Allocations Monitor, which surveyed 244 institutions in 28 countries, showed that 44% of institutions now have a target allocation of more than 10% – up from 27% in 2016.
However, about 60% of institutions are under-invested in real estate and the average portfolio is 100bps below its target, while sentiment has declined from “moderately optimistic” to “slightly pessimistic”.
Some 86% of institutions favoured value-add opportunities, focusing on investments that generate a strong active return.
Douglas Weill, managing partner at Hodes Weill & Associates, said: “While exceeding the 10% threshold is a seminal moment, the steady growth in allocations to real estate that the industry has experienced over the years appears poised to decelerate in the near term.
“This is due primarily to waning investor confidence, a trend that we have seen grow increasingly stronger since we first began conducting the survey. However, we anticipate that the long-term outlook for institutional capital allocations to real estate will remain positive given the many benefits of the asset class.”
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