Institutional investors in Sweden show a marked preference for the domestic market in their real estate investments, according to INREV's Investor Universe Sweden Survey 2011.
Less than 20% of the total real estate exposure of Sweden's institutional investors is held outside Sweden. By contrast, investors from the Netherlands and Germany have 57% and 35% of their total real estate investments in non-domestic markets, respectively. Only the UK has an even smaller exposure to non-domestic real estate investments than Sweden, with a total of 13%.
This very strong domestic focus might be partly explained by the experience of Swedish investors in the 80s who saw real estate investments abroad plummet in value. "As a result, investors are now much more cautious about non-domestic markets. Sweden's relatively strong domestic economy also adds to the desire to stay at home," says Lonneke Löwik, INREV's Director Research and Market Information.
The survey follows recent examinations of the non-listed real estate markets in the UK, Germany and the Netherlands and provides a new and interesting perspective on the strategic approaches taken across all four countries. The survey suggests that the current vogue for domestic direct real estate is only set to become a more prominent and enduring strategy especially among Swedish life insurance funds.
Transparent, cost-efficient market attracts all investors Swedish investors consider domestic direct real estate investments to be both cost-efficient and highly transparent, with 80% of them pursuing a domestic direct strategy. This dominant trend holds true even for smaller investors.
"Maybe the greater availability in Sweden of smaller lot sized investor-grade stock compared with places such as London makes this strategy equally attractive to large and small investors," commented Lonneke Löwik.
The survey suggests that the current vogue for domestic direct real estate is only set to become a more prominent and enduring strategy especially among Swedish life insurance funds.
Domestic market provides diversification Institutional investors see little advantage in portfolio diversification through non-listed real estate investments. On the contrary, they view the country's regional economic differences and the number of different real estate sectors within Sweden as providing plenty of opportunities for a diversified portfolio without venturing abroad.
More generally, respondents to the survey expressed reservations about non-listed real estate investments owing to a perceived lack of control and influence over the investment and high cost. However, several investors indicated that they would consider a non-listed approach as part of their overall investment strategy in the future, citing access to expert or specialist management as a key benefit.
Currently, non-listed real estate makes up just 10% of Swedish investors' portfolios on average. This is in sharp contrast to Dutch institutional investors, for example, who have 34% of their total real estate investments allocated to the non-listed sector.
Investors underweight in real estate The survey shows that all funds in Sweden are currently under-exposed to real estate by an average of 1.5% against their target allocations. The recent rally of stock prices and the return on bond investments have reduced the proportion of real estate investments as part of investors' total asset allocations.
However, the Swedish real estate market is estimated to grow by almost 20% over the next three years despite the fact that investors don't expect to meet all their real estate targets.
Direct domestic investments are dominating these growth expectations so when it comes to the non-listed market, the survey reveals that although the sector will grow it will be at a much lower pace, reducing its share of 10% to below 8.5% of total real estate investments.
"It's a question of culture and confidence. Of course all four markets are starting from different positions, with arguably the Netherlands being the mo