Notable in the Investment Intentions Survey 2024 is how far Europe's investment community is exhibiting caution
The allure of real estate for investors has dimmed slightly, as evidenced by narrowing allocation gaps in Europe, Asia Pacific, and North America, continuing a three-year trend.
The 2024 Investment Intentions Survey, released last week by ANREV, INREV, and PREA, presents a global average real estate allocation at 10.6%, marginally above the target of 10.4%. This overallocation is driven predominantly by European investors whose allocations exceed targets by 67 bps.
Notable in the Survey is how far Europe's investment community is exhibiting caution, with 43% forecasting decreased allocations – in stark contrast to Asia Pacific's bullish outlook, where 41% anticipate an increase and none expect a decrease.
Riskier Appetites Prevail
2024 sees a pivot away from core strategies, with 78% of capital set for Europe earmarked for higher-risk investments – value-added strategies being the choice for 55%. This shift mirrors the post-2008 crisis period, suggesting investors are gearing up to seize high-return opportunities amidst current market downturns.
Geographically, the UK, after a six-year lull, has resurged as the prime European investment destination, with interest soaring from 50% to 84%. Germany and France trail closely. The UK's marked price correction since mid-2022 appears to be drawing investors, signaling a hunt for bargains.
Residential and Logistics are investors' favourites
For the first time, the residential sector clinches the top spot, with preference jumping to 90%. Industrial/logistics also sees a significant boost. Meanwhile, student housing and healthcare sectors are gaining traction, while retail interest is plummeting to just 16%, from 31% last year.
Investor preference for real estate debt remains strong, with an 81% net increase, underpinned by its perceived safety and the scarcity of traditional lending. Also in favour are joint ventures, club deals, and separate accounts,indicating a trend toward direct control and specialized risk-sharing investments.
Not surprisingly, 2024 investment decisions are being heavily influenced by interest rates and inflation, with the 'denominator effect' also playing a critical role.
Conditions favour cash-rich investors
Iryna Pylypchuk, Director of Research and Market Information, INREV
Iryna Pylypchuk, INREV’s Director of Research and Market Information, notes the current uncertainties provide a fertile ground for cash-rich investors to leverage early opportunities, despite the broader trend of allocation adjustments.
"Despite many uncertainties prompting investors to adjust their allocations to real estate globally, as portfolios churn and investments mature, 85% of investors globally are expecting to deploy capital into real estate this year. We are entering a window of potential mispricing and repositioning opportunities be it through a bottom-up asset selection, by exploring market bifurcation or through private equity play as cash deprived players struggle to service their debt,” she said.
The annual survey, a collaboration between INREV, ANREV, and PREA, offers insights into the upcoming trends in non-listed real estate fund investments, with this year's data drawn from 90 global respondents with a combined AUM of €830 billion.
