Institutional investors in France look set to increase their allocations to non-listed real estate funds by 56% over the next three years, rising from 34 billion to 53 billion, according to INREV's Investor Universe France Survey 2011.
France is Europe's largest institutional market but with the exception of Germany, has the lowest real estate exposure at 5.7%. Due to its sheer size the total amount dedicated to real estate is the largest among the five countries studied so far at 130 billion.
With prospective total assets under management estimated to grow by 15% by 2014, and an expected increase of real estate allocation by 1%, the outlook for the non-listed real estate funds sector is encouraging.
The survey follows recent examinations of the non-listed real estate markets in the UK, Germany, the Netherlands and Sweden. It adds to the growing cannon of knowledge about the size and composition of the European institutional non-listed real estate universe.
Investors recognize benefits of non-listed real estate funds
The study highlights the fact that French institutional investors seem to be increasingly aware of the potential benefits of the non-listed real estate funds sector. They cited international diversification, access to new markets and sectors, and access to expert and specialist management as strong attractions. On average, non-listed real estate makes up approximately 26% of French investors' portfolios, roughly similar to the other countries surveyed. It is expected to increase to 30% in the next three years.
"Like most of our international clients, many French investors are realizing that non-listed real estate vehicles can serve as a good supplement to existing core domestic investments. Interestingly the smaller investors, for whom the advantages of diversification might be really valuable, prefer to invest directly in real estate," commented Christian Delaire, Chief Executive Officer, AEW Europe and INREV Management Board Member.
Cautious approach preferred
The main French investors remain committed to investment in the core style real estate funds. They are mostly focused on domestic income-producing sectors such as offices in Paris or the Ile-de-France, demonstrating a cautious approach to risk.
Domestic investment accounts for 92% of French investors' real estate assets and 5.2% of their total assets. Most investors opt for a predominantly domestic real estate investment strategy because the market is seen as relatively stable, and they consider that they can achieve sufficient diversification without going abroad.
Direct real estate investment also retains a major role in the portfolios of French investors, accounting for almost 62% of total real estate allocations.
Despite the positive signs, the survey confirms that many French investors are still cautious about non-listed real estate investment.
"They seem to perceive a lack of control and transparency. And, given that large insurance companies make up 62% of the French institutional investor universe, regulatory issues such as Solvency II are likely to be impacting their appetite for non-listed real estate vehicles.
"Hopefully, initiatives such as the recent release of the first frozen INREV Annual Index; and the introduction of our new Styles Classification will go some way to addressing concerns over transparency. INREV's Solvency II project evidencing the argument for a reduction in the proposed capital charge on insurance companies' real estate investments should also give comfort to any French investors still unsure about the benefits of investing in the non-listed real estate funds sector," concluded Lonneke Löwik, Director of Research and Market Information at INREV.
Source: Firstlight PR