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Institutional Investors Plan to Up Their Allocations to Real Estate in...

Institutional investors plan to dedicate more of their funds to real estate next year, continuing a trend that has been seen since 2013, according to a new research report. Global institutional investors’ average weighted target allocation to real estate is expected to tick up in 2019 to 10.6 percent from 10.4 percent in 2018, according to results of a survey administered by Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates, a real estate advisory firm. “We’re still in a very low interest-rate environment and investors are still hungry for yield,” says Jim Costello, senior vice president at real estate data firm Real Capital Analytics. Real estate is also seeing strong returns for institutional investors, Weill says. In 2017, the average total return for these real estate portfolios was 9.2 percent, up from 8.7 percent in 2016. The target for 2018 is 8.2 percent, the Cornell/Hodes Weill report found. The report found that investors based in the Americas on average expect target real estate allocations in 2019 to be at 9.9 percent—flat with this year’s target. Weill says this is something he expects will continue: “If you look at conviction, the institutions in the U.S. have the least favorable view of real estate, and I think it’s driven by a general view that real estate is late in the cycle,” Weill says. But institutions based in the Americas were closest in 2018 to their targets; their actual allocation of 9.0 percent to real estate was 90 basis points shy of their target. In the Americas, 95 percent of institutions indicated they are actively targeting value-add investments compared to 50 percent that target core strategies.