Pressure to invest "opening up selling opportunities" – Union study
It's that time of year again (actually, twice a year) when giant German fund manager Union Investment takes the temperature of European institutional investors to gauge their investment intentions. This time 165 big investors from Germany, France and the UK responded to the Union Investment questionnaire, and as usual the feedback is revealing.
Union Investment summarise the latest findings on investor intentions as being tinged with caution. Investors show a strong willingness to take profits after a healthy few years of steadily rising prices, along with a desire to clean up their portfolios and to take advantage of the ongoing pressure to invest by lightening up on asset holdings.
Union found that that 72% of German investors, 84% of UK investors and 52% of French respondents planned to focus their investment teams on taking profits and rebalancing portfolios. “Taking profits has become essential for an increasing number of investors,” it said.
Less than half of the professional real estate investors surveyed in the three key markets now believe they will achieve their yield targets in the next three years, while their views on returns over a five-year period are even less optimistic.
According to Olaf Janssen, head of real estate research at Hamburg-based Union Investment, "Contrary to their original strategies, whole rafts of investors are opting to take profits and are becoming net sellers, which is unusual."
Another useful finding is how investors are no longer regarding the core sector as a source of stable performance, with many looking towards secondary cities to boost their investment outside the core segment over the next 12 months. 48% of German investors said they are taking this approach, while in France the figure is higher at 58% and in the UK, 51% of investors said this was what they planned.
In fact, since the last reading in December 2014, the number of investors preparing to mix in investments from B-cities has risen strongly. 25% of all the companies surveyed also said they planned to boost diversification in their portfolios by investing more in hotels and logistics properties.
"There's a lot of evidence that there has been a decided shift to riskier investments and this approach has been take up across a broad spectrum", says Janssen, confirming that this shift in yield orientation is common to all three markets. In France, the traditional obsession with safety and liquidity has been replaced by the hunt for yield as the key investment factor by 52% of investors. In the UK, 76% now rate the pusuit of yield the dominant factor. The more conservative Germans give 40% each equal rating to safety and yield.
The greater tolerance for risk even since December 2014 can be explained by the improving real estate investment climates in all three countries, say the Union researchers – with the UK investment climate as measured by the Union Investment barometer reading the most optimistic.
The semi-annual Union Investment Climate Index has been carried out since 2005, and in analysing investor responses, gives a 25% equal weighting to the sub-indices Market Structure, Economic Environment, Local Conditions and Expectations. The latest survey was carried out by market research group Ipsos between June and August 2015.