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Trend shift in institutional real estate funds: residential instead of retail

A new analysis shows that a large proportion of institutional real estate funds invest their capital in the housing market. 52 real estate funds with a total equity volume of 42 billion euros were used for the analysis.

The current investigation was carried out by the Scope rating agency. Scope asked a total of 21 asset managers about their offers in indirect real estate investments for German investors.

Housing market in the focus of German investors

10 of 52 surveyed funds invest their capital in the housing market and thus around 27 percent of the total equity volume. 14 funds invest their assets in office properties and come to 22 percent of the total equity volume.

The regional allocation of the 52 funds examined gives a clear picture. Around 40 percent of the funds examined put their investment focus on Europe and more than a third on German real estate. Globally investing funds, however, are the exception.

Retail investments are declining

Currently, none of the funds examined is a purely investing retail fund, as Scope continues. In 2018, however, there were still 15, which was the third largest type of use. Before that, there were only 39 mixed-use property funds and 17 funds that invested in the office market.

And investment in retail real estate is also expected to decline in the future. As the analysis by Scope shows, only 24 percent are planning further purchases in the retail segment. At the same time, 30 percent of the funds surveyed are planning to sell retail properties.

At the same time, Scope assumes that investments in hotel real estate will continue to decline in the wake of the Corona crisis. The flow of investments will accordingly concentrate more on the residential and logistics sector.

“Core” objects are the focus

For years, “Core” and “Core +” properties have been the focus of institutional investors. According to Scope, this will not change in the near future. More than 80 percent of the funds are currently investing in the low-risk “Core” class, and another 15 percent are investing in the next “Core +” class.

Scope’s analysis also provides information on the expected return. Accordingly, the real estate funds expect an average return of “five to six percent or seven to eight percent,” as Scope writes.

Image sources: Hani Santosa / Shutterstock.com

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