Frankfurt am Main, October 4 2015
Real estate allocation to rise to above 12 percent
63 percent of new investments via indirect investments solutions such as funds
Residential properties in particularly high demand
SCS overtakes German real estate special fund as the investment vehicle of choice
The proportion of survey participants’ investments going into real estate currently stands at around 8 percent and is set to continue rising to above 12 percent as respondents maintained the very ambitious goal of 12 percent, which they had set in the previous year’s survey. This reflects the relatively high affinity to real estate of respondents to this survey compared with other market studies. “We have been noticing for some time now that institutional investors are using the ongoing low-interest phase to boost their real estate allocations. In comparison with other low-risk and low-volatility investment alternatives, yields of between 3 percent and 4 percent in the real estate area are currently exceedingly attractive to many investors,” Alexander Tannenbaum, Managing Director in charge of Universal-Investment’s Real Estate division, explains.
With regard to the type of real estate investment, the trend is heading increasingly towards indirect investment vehicles. Up to now, around 47.5 percent of respondents’ real estate investments were invested directly and about 52.5 percent through funds. In future, when making new investments, the investors surveyed plan to put 63.6 percent into indirect investment vehicles. This therefore confirms the trend towards indirect real estate investments seen in the previous year, because this share was only 60 percent in 2014. According to the current survey, 18.2 percent of new investments are set to flow into open-ended real estate special funds (previous year: 30 percent) under German law (Special AIFs pursuant to the German Investment Code (KAGB)) and 27.3 percent in SCS and SCSp (previous year: 10 percent), the Luxembourg counterparts of the German Investment-KG investment vehicle (SCS - société en commandite simple (common limited partnership); SCSp - société en commandite spéciale (special limited partnership)). Direct investments in real estate are still set to account for a share of 36.4 percent (previous year: 40 percent). “We are still observing an ongoing trend towards indirect forms of investment. In this segment, in turn, the focus is clearly on regulated investment vehicles. The perennial favourite of open-ended real estate special funds continues to be in high demand. The new focus this year is the high estimation for Luxembourg vehicles like the SCS. In contrast, the German version of this form of investment, the Investment-KG, still tends to play a subordinate role in institutional investors’ new investments,” Tannenbaum says.
Regional investor behaviour is subject to ongoing changes in line with economic cycles and other market factors. Currently, German real estate holdings account for 64 percent (previous year: 72 percent) of respondents’ real estate allocations. Pan-European investments account for 28.2 percent (previous year: 24.30 percent). North America ranks third with 3.8 percent (previous year: 24.3 percent), followed by Asia with 3.8 percent (previous year: 0.8 percent). However, 67.5 percent of new investments are set to flow into Germany (previous year: 63.5 percent) and 5.7 percent into North America (previous year: 5.7 percent). New investments in the remaining parts of Europe will decline to 22.5 percent from 28.2 percent. “Again, the outlook here is interesting. Investors want to raise their allocations in North America and Germany in particular. Now Europe is more interesting as a supplement, and the Asian markets have partially lost their power of attraction too,” Tannenbaum says in explaining how investors plan to direct their new investments.
There is a particular focus on residential properties in the planned new investments. Their share is set to double from the current holdings of 18.5 percent to a planned share of 37.9 percent. In the previous year, current holdings were still only at 19 percent and were set to be increased moderately to 21 percent. At the same time, office properties are losing their leading position in new investments, ranking only in second place behind residential properties with a share of 36.4 percent. Interest in future investments in logistics properties remains virtually unchanged at a 6.7 percent (current holdings: 6.8 percent). Planned future investments in retail properties have also declined significantly to 18.5 percent from current holdings of 26.7 percent. “These are extremely interesting results. It is not a new phenomenon that residential properties are seeing a renaissance as a form of investment for institutional investors. “However, the extent of the planned restructuring in the portfolios to the detriment of office and retail properties is remarkable,” Tannenbaum says in explaining the findings.