This year's top choice for sector investment will be industrial/logistics for the first time, topping the perennial favourites - office and residential - and ahead of retail in fourth place, according to INREV's 2022 Investment Intentions Survey.
INREV said that while the office sector is the largest component of existing real estate portfolios, it is far less popular for new investment with only 20% of capital likely to be deployed into the sector this year globally because of the continued uncertainty concerning the future of office working.
The INREV study also shows a marked increase in investors' risk appetite, with the majority of the 99 investment managers surveyed by the European non-listed fund association naming Value-Add as their preferred investment style for the current year. Not since 2008 has the quota for risk classes above core been so high.
The survey shows Value-Add (57%) and Opportunistic (13%) together making up a whopping 70% of the maximum possible 100% approval rating for investment styles. Only back in 2008 were investors more risk-friendly (94%). Since 2019, the approval ratings for value-add and opportunistic have hovered between 50% and 61%.
According to INREV's director of research and market information Iryna Pylypchuk, the "noticeable increase in risk appetite" is partly a consequence of the very high core allocation among investors, together with the weak-to-negative performance of bonds in investors' portfolios. "Moreover, the timing is right for such a strategy. The European economy is recovering and the time of automatically rising capital values is over. Now it makes sense to focus on repositioning and rental growth."
Investors' target markets have also seen a change over the past year. The exceptionally high preferences for Germany and France - at 81% each a year ago - have fallen. Germany drops 10 points to 71% and is now almost on a par with the UK (69%, previous year: 71%). France remains the most sought-after target market with 74%. Meanwhile, Spain is really catching up, with a jump from 45% to 62%. The Netherlands, now at 57%, Denmark (48%) and Italy (45%) have also improved noticeably.
Pylypchuk also said it was noticeable how Asian and American investors were still interested in broadly diversifying within Europe' big three liquid markets of the UK, France and Germany, while buyers from other continents are those remaining most loyal to the classic investment asset class of offices. European investors are increasing diversifying their investments beyond the classic office investment, mainly with logistics properties (71%) and residential (69%). Their allocation targets for 2022 are significantly below the seven-year average for both office and retail properties.
She added, “The 2022 Investment Intentions Survey is a powerful reminder of the investment appeal of real estate as an asset class, with the diversification benefit it offers in a multi-asset portfolio remaining the key driver of growing allocations. The latest results reveal intriguing shifts towards value added strategies as well as the growing importance of ESG considerations.”
Not surprisingly, the ESG agenda is at the top of investors' minds, with most investors now considering non-listed funds’ ESG characteristics before investing. Globally, 68% of the surveyed investors consider a Net Zero Carbon commitment to be an important feature when investing in a non-listed real estate fund.
The Investment Intentions survey, which INREV produces in conjunction with ANREV and PREA, also found that institutional investors plan to invest at least €68.2 billion in global real estate this year, with 61% of investors planning to increase their allocation to property during the next two years.
European investors are the source of most of the new capital identified, while 26% will emanate from North America and 22% from Asia Pacific.
In 2022, 41% of planned capital deployment is targeting Europe, compared to 39% heading for North America (the United States only) and 19% to the Asia Pacific.
