Despite COVID-19, Global Institutions Continue to Increase Allocations to Real Estate
Target allocations to real estate increase 10 basis points year-over-year, reaching 10.6%
Actual portfolio allocations climbed year-over-year from 9.4% to 10.0%, in part due to denominator effect
Despite market uncertainty, institutions expect to be actively allocating to new investments over the next 12-24 months
Appetite increasing for opportunistic strategies, as investors shift focus to distress
NEW YORK--(BUSINESS WIRE)--Uncertainties related to COVID-19 have not dampened global institutions’ confidence in commercial real estate. In fact, investor sentiment increased for the third straight year, reaching a seven-year high in 2020, according to Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate’s eighth annual Institutional Real Estate Allocations Monitor.
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 5.7 to 5.9. The steady growth in confidence in the asset class reflects the strong returns investors have realized over the last five years, which were particularly attractive in a yield-starved environment. Though actual investment returns declined 30 basis points to 8.5% in 2019, results continue to outpace average target returns of 8.3%.
To download the full report, which was published today, please visit: www.hodesweill.com/research.
Real estate continues to play an important and growing role in institutional portfolios. In addition to favorable investment performance since the global financial crisis, institutions cite the following as reasons for increasing their target allocations: low correlation of investment returns to other asset allocations; favorable operating fundamentals in terms of supply and demand; and the opportunity to generate attractive income yields. Target allocations increased to 10.6% in 2020, up 10 basis points from 2019 and 170 basis points from 2013, when the survey was first conducted. The 10-basis-point increase implies the potential for an additional $80 to $120 billion1 of capital allocations to commercial real estate over the coming years, which should support continued liquidity and asset valuations.
Read the full press release here.