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2021 Institutional Real Estate Allocations Monitor

Institutions Remain Significantly Under-Invested Relative to Target Allocations and Capital Flows to the Real Estate Sector Are Accelerating, Finds Hodes Weill & Associates and Cornell University

Average target allocations increase 10 basis points year-over-year to 10.7%, implying the potential for an additional $80 to $120 billion of capital allocations to real estate

Institutional portfolios are under-allocated to real estate by 140 basis points, the widest margin over the past seven years

Market sentiment increased to a nine-year high, and investors are optimistic about the opportunity to deploy capital

Cross-border capital flows remain strong, with the percentage of institutions investing outside of their domestic regions on the rise for the first time since 2018

NEW YORK--(BUSINESS WIRE)--Despite decreased returns in 2020, institutional investor confidence in commercial real estate remains strong, reaching a nine-year high in 2021, according to Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate’s ninth annual Institutional Real Estate Allocations Monitor. Pensions, sovereign wealth funds, insurance companies and other institutions continue to look to real estate as an important portfolio diversifier, hedge against inflation and source of stable income.

Actual returns declined significantly in 2020 from 8.5% to 5.9%, owing to a decline in property valuations resulting from vacancies, cash flow risks and uncertainty related to the COVID-19 pandemic. However, the vast majority of institutions are viewing this decline as an episodic event and remain optimistic for 2021, as valuation metrics climb to all-time highs.

The “Conviction Index” in this year’s survey, which measures institutions’ view of real estate as an investment opportunity from a risk-return standpoint, increased from 5.9 to 6.5 – its highest point since the survey launched in 2013. This growing confidence can be attributed to strong fundamentals in industrial, multifamily and niche property sectors such as life sciences and data centers, which are strategies that continue to attract significant capital. The view that there is, or will be, an opportunity to invest in certain sectors or markets that are experiencing distress or dislocation is also driving investor conviction.

To download the full report, which was published today, please visit:

Target allocations to real estate increased for the eighth straight year to 10.7% in 2021 – up 10 basis points from 2020 – implying the potential for an additional $80 to $120 billion of capital allocations to real estate in the coming years. While target allocations have seen moderate year-over-year growth for the last three years, institutions expect to increase their targets at a faster pace over the next 12 months to an average of 11%. This increase is expected to be led by Asia Pacific-based (APAC) institutions – which are forecasting an increase of 90 basis points – and Europe, Middle East and Africa-based (EMEA) institutions, which also expect a substantial increase of 60 basis points. Institutions in the Americas held target allocations at 10.1% for the third straight year and are projecting a 20-basis-point increase for 2022.

The percentage of institutional portfolios invested in real estate decreased from 10.0% to 9.3% in 2021, widening the gap between target and actual allocations to the largest margin in the past seven years. The 140-basis-point margin is meaningfully above the 60 to 110 basis point range Hodes Weill and Cornell have documented since the survey was first conducted. Approximately 67% of institutions are under-invested relative to target allocations by an average of 230 basis points, while institutions in APAC remain the most underinvested, at a margin of 290 basis points. This, along with a substantial increase in conviction year-over-year, suggests that institutions in APAC will be very active deploying capital over the coming years.

Douglas Weill, Managing Partner at Hodes Weill & Associates, said, “Last year, institutions reported being under-invested by an average of 60 basis points, which we largely attributed to the denominator effect and the poor performance of public equities following the onset of the COVID-19 pandemic. With public markets reaching all-time highs, we believe the denominator effect to be at play once again this year, with record-breaking performance widening the gap between actual and target allocations. However, as markets continue to stabilize and people are able to return to work and travel more, we have seen the pace of deployment into real estate accelerate – especially considering that confidence in the asset class continues to climb.”

Cross-border capital flows remain strong, and the percentage of institutions investing outside of their domestic regions is increasing for the first time since 2018, with the U.S. remaining a preferred destination for international capital followed by continental Europe. Interestingly, only 16% of institutions reported a willingness to invest in emerging markets, down from 23% in 2020. This decrease was driven by institutions from all regions, suggesting that investors are finding more favorable risk-adjusted returns in developed markets.

As it relates to risk preferences, higher strategies remain in favor, with 92% of institutions currently allocating to value-add and or opportunistic strategies. U.S.-based institutions are showing the greatest appetite for risk, while the survey noted a decline in the percentage of EMEA- and APAC-based institutions actively allocating to opportunistic strategies. Despite headlines that institutions have been decreasing their exposure to core holdings, including redeeming capital from core open-end funds, the shift away from core seems to be abating and appetite for core strategies is growing.

Closed-end funds remain the most popular investment product for institutions in 2021, with 79% of investors reporting that they are actively allocating to the product type. The percentage of institutions investing in both joint ventures and open-end funds increased slightly, while appetite for separate accounts is the lowest in the survey’s history at 28%. While Larger Institutions (with AUM over $50 billion) continue to favor closed- and open-end vehicles, they remain highly active in allocating capital to direct investments, joint ventures and separate accounts.

The trend of institutions outsourcing their real estate investments to third-party managers continues to grow, with 94% of institutions reporting that they are outsourcing the management of all or a portion of their portfolios. The report finds that these trends are driven by rising target allocations and increased cross-border investing, which are pushing investors to hire managers for their real estate portfolio investments. It is expected that 89% of new investments over the next 12 months will be allocated to third-party managers.

2021 is expected to outpace all preceding years in terms of strategic transactions in the real estate investment and fund management industry. During the first half of 2021, 16 transactions were announced or closed, representing a year-over-year increase of roughly 45%. This momentum has continued through the third quarter, with an additional nine M&A transactions announced or closed, and numerous additional transactions in the works. The increase in transactions is being driven by pent-up demand from 2020, strategic growth initiatives, succession planning and tax considerations, among other factors. Eight of the 16 transactions completed in the first-half of 2021 represented control sales, largely comprised of “bolt on” acquisitions for larger asset management platforms seeking to expand their strategies and/or geographic footprints. The market for minority stakes remains very active, with a notable shift from large cap managers to the middle market.

The report also found that ESG continues to be a major focus of investors, and investment managers are positioning their organizations and operating practices to accommodate their clients’ objectives. This year, approximately 50% of institutions reported having a formal ESG policy in place, up from 47% in 2020 and 33% in 2015 when the survey began accounting for ESG. ESG has now moved from a “nice to have” to a “have to have” for managers and their institutional clients.

The 224 institutions that participated in this year’s survey represent aggregate AUM of US$13.4 trillion and portfolio investments in real estate totaling approximately US$1.2 trillion.

About Hodes Weill

Hodes Weill & Associates ("Hodes Weill") is a leading, global advisory firm focused on the real estate and real assets investment and funds management industry.* The firm has offices in New York, Denver, Hong Kong and London. Founded in 2009, Hodes Weill provides institutional capital raising for funds, transactions, co-investments and separate accounts; M&A, strategic and restructuring advisory services; and fairness and valuation analyses. Clients include investment and fund managers, institutional investors, lenders, property owners and other participants in the institutional real estate and real assets market. For more information, please contact or visit

*All U.S. regulated capital market and securities advisory services are provided by Hodes Weill Securities, LLC, a registered broker-dealer with the SEC, and a member of FINRA and SIPC, and internationally, by non-U.S. Hodes Weill affiliates.

About Cornell University’s Baker Program in Real Estate

Cornell’s Baker Program in Real Estate is home to the Masters of Professional Studies in Real Estate degree, a comprehensive, graduate-level curriculum that educates the next generation of real estate industry leaders. Cornell is also home to the Cornell Real Estate Council, an extensive network of over 2,000 real estate industry leaders, and host of the annual Cornell Real Estate Conference. For more information, please visit


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