Investors plan to expand the real estate share in special AIFs | Markets | December 14, 2020


A survey by Lagrange Financial Advisory shows: Institutional investors want to increase the real estate share in their special funds. Core-plus real estate is the most popular risk category, Germany is by far the most popular target region.

Risk diversification and a lack of investment alternatives are the drivers for more real estate in special funds.

© Lagrange Financial Advisory GmbH

Interest in special real estate funds is growing among German institutional investors. This was the result of a survey by Lagrange Financial Advisory GmbH (Lagrange) among those responsible for old-age provision institutions, foundations as well as Depot-A-Managers and other major investors. A clear majority of investors reported plans to increase the real estate share in their special AIF portfolio in the next twelve months.

The result is an index level in the Lagrange Fund Monitor of 7.12 points in relation to the investors’ plans to expand their real estate investments (to explain: a level of one would correspond to a strong reduction, a level of eleven to a strong increase in the real estate share) .

With regard to the opportunity-risk profile, the index was 6.2 points, which corresponds to a slight tendency towards opportunity orientation / risk acceptance. The most popular risk category is core plus (47 percent of responses), followed by core and value add (27 and 25 percent of responses, respectively), while opportunistic engagements are only of interest to seven percent of respondents.

Clear preference for residential real estate
With regard to the various types of real estate use, there is currently a clear preference for residential real estate, which 19 percent of the respondents consider. What is also remarkable is the strong interest in logistics properties, which at 15 percent are ahead of office properties (12 percent). Retail properties with at least 70 percent food are eligible for ten percent of the participants, while non-food retail properties were named by only one percent.

Of the various target regions for the investments of the real estate special AIF, Germany enjoys the greatest popularity. 22 percent of the survey participants prefer their home market. The most popular foreign markets are France, the Benelux countries and Scandinavia, each with seven percent, followed by Austria, Switzerland, Canada and Australia with five percent each.

Risk diversification and lack of investment alternatives as motivations
The most important reason for investing in real estate special AIFs was given by 42 percent of those surveyed that risk diversification in the portfolio and 29 percent were the lack of investment alternatives. Investments in the USA (4 percent) are currently not particularly high on the agenda. When asked about the impact of the US election on the attractiveness of real estate investments in the leading Western economy, 75 percent of those surveyed said they did not expect any changes. Only 17 percent expect the US real estate market to be more attractive, and eight percent to be less.

When asked about the greatest challenges currently associated with investments in special real estate AIFs, high real estate prices and low initial yields were mentioned most frequently (55 percent). The risk of falling prices and rents (23 percent) and the low number of properties on offer (18 percent) also play a role, while the financing of property purchases (five percent) currently does not seem to be a problem.

The focus is on the tried and tested
“In the current market environment, institutional investors apparently rely on tried and tested real estate special AIFs and only take moderate risks,” explains Sven Helmer, Managing Director of Lagrange. This becomes particularly clear with the preferences for different types of real estate use, where the two asset classes are most in demand, which were least affected by the Corona crisis or even – as was sometimes the case in the logistics segment – were able to benefit from it. “However, this may change in the course of 2021 if, for example, catch-up effects in the area of ​​office letting become visible,” said Helmer. Under the impression of the first few weeks of the lockdown in spring 2020 and the temporary change of office workers to the home office, this type of use was little in demand for a while, but since early autumn at the latest, investors’ interest in offices has increased significantly again.

“The corona pandemic has so far hardly led to price drops, at least in the top locations of the real estate markets, so that even before the coronavirus, current issues such as the high price level and the small selection of properties continue to shape the market and are experienced by investors as a challenge,” adds Monika Bednarz , Director of Lagrange. The fact that little has been reported about problems on the financing side so far is, in their opinion, partly related to this. However, it remains to be seen how the situation will develop in the coming months, as experience has shown that defaults by commercial tenants will only be reflected in the banks’ books with some delay. (hh)

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