Institutional Investors Plan to Increase Their CRE Allocations in 2021
The results of the 2021 Intentions Survey of institutional investors conducted by the Pension Real Estate Association (PREA), European Investors in Non-Listed Real Estate Vehicles (INREV) and Asian Association of Investors in Non-Listed Real Estate Vehicles (ANREV) are in and commercial real estate continues to be very much in favor. However, there have been some notable changes in institutional investors’ preferences for their real estate allocations looking forward. Here are some takeaways from the survey:
More institutional investors plan to increase their allocations to commercial real estate in 2021 compared to those who said they will decrease such allocations. That includes a quarter of all investors based in North America.
Overall, 95 percent of all surveyed investors plan to deploy more capital into real estate investments in the year ahead than they did in 2020.
Last year, institutional investors reached an average allocation to real estate of about 9.3 percent, below their average target allocation of 10.0 percent.
About 22 percent of investors based outside North America are planning to target real estate investments in the U.S. this year.
For those based in North America, investing in real estate through separate accounts and through direct ownership of real estate properties continue to be the most common vehicles for participating in the sector.
Going forward, larger institutional investors in U.S. real estate would like to increase their participation in joint venture partnerships and commingled funds to grow their real estate portfolios. Forty-seven percent of all surveyed investors would like to increase their participation in commingled funds as these vehicles can allow them to invest in new property sectors they may not have previous experience in.
Within the U.S., institutional investors continue to prefer core properties. However, there has also been a notable spike in interest in opportunistic investment vehicles, likely as a result of expectations for distressed pricing as a result of COVID-19.
The survey also showed increased interest in investment in smaller U.S. cities, including Atlanta, Dallas, Denver, Richmond (VA) and Seattle. Boston took the number one spot for the most desirable U.S. market to invest in.
Industrial is currently the most popular property sector among institutional investors, followed by multifamily assets.
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