Majority of institutional investors to increase or maintain exposure to real estate in next two years


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Four in five (80 per cent) institutional investors plan to increase or maintain their exposure to real estate over the next two years, according to a study from Acquila Capital.

With 38 per cent of respondents feeling ‘positive’ or ‘very positive’ about the outlook for the asset class, the research suggests that institutional investor demand for European real estate shows few signs of abating.

Overall, 87 per cent of institutional investors currently invest in real estate, with their average exposure equating to 11 per cent of their portfolio. 58 per cent of investors have exposure to a core real estate investment strategy with a third (32 per cent) holding core-plus assets. 27 per cent and 15 per cent of respondents are invested in value-added and opportunistic strategies respectively.

Despite their enthusiasm, investors have a number of concerns about the outlook for European real estate: nearly half (47 per cent) are worried by the impact of continued economic uncertainty while 43 per cent think assets are at, or are close to, being fully priced. Around a third (31 per cent) flagged falling yields in prime markets while 22 per cent cited uncertain geopolitics and the threat of terrorism as being problematic.

The real estate investment vehicles most favoured by institutional investors include: collective funds (38 per cent), specialist investment funds (35 per cent) direct ownership (23 per cent) and fund-of-funds (23 per cent).

Rolf Zarnekow, head of real estate at Aquila Capital, says: “Institutional investor demand for European real estate remains extremely strong and we are likely to see increasing amounts of new capital allocated to this asset class given the risk-adjusted returns it can offer.

“In our view, the Spanish residential sector currently offers a significant investment opportunity. We began investing in the Spanish property market two years ago and continue to see a significant increase in demand from international investors seeking to gain exposure to prime residential assets in key cities such as Madrid and Barcelona.”

The findings follow Aquila Capital’s recent launch of a new real estate strategy for institutional investors that invests in the reinvigoration of the Spanish residential property market. The strategy focuses on the construction of residential housing complexes and the conversion of existing properties to residential real estate in the metropolitan regions of Spain.

Aquila Capital has already made a number of acquisitions and has a significant pipeline of further opportunities in this sector. The strategy targets a total return of 155 per cent to 175 per cent after local taxes and costs by the end of its investment term in 2019.

According to the research, almost 82 per cent of investors are positive or neutral about the prospects for the Spanish real estate market and one in three respondents (31 per cent) expects to see increasing numbers of institutional investors capitalising on the opportunities offered by the sector over the next two years.

Roman Rosslenbroich, CEO and co-founder of Aquila Capital, says: “We are delighted by the interest that our investment strategy has generated among investors and look forward to deploying newly raised-capital across a range of residential schemes that offer tremendous potential for capital appreciation.”

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