European investors cut allocations for real estate

MORE than a third of European investors plan to cut their allocations to real estate in the next two years, trade body INREV says.

This is as rising interest rates and falling valuations make the sector less attractive.

It said 37% of European investors intend to reduce their exposure, compared with 20% of North American and 5% of Asia-Pacific investors.

This is according to an INREV survey of 82 investors with nearly 800mil euros (RM3.72bil) in assets under management. At the start of 2022, only 4% of European investors planned to cut back last year, the survey shows.

INREV is the

European Association for Investors in Non-Listed Real Estate Vehicles.

European markets have been particularly hard hit by inflation and an energy crisis as a result of the war in Ukraine.

Rising interest rates are increasing the cost of leverage – or borrowing – to invest in real estate.

This is also making other markets such as fixed income more attractive than before, industry specialists say.

European investors currently have 10.8% of their investments in property.

This is above target allocations of 10.5%, the INREV survey shows.

A sharp drop in prices last year in other asset classes means property makes up a disproportionately large part of investor portfolios, the report says.

The European non-listed real estate sector saw a 1.6% drop in capital values in the third quarter of 2022.

This is the largest quarter-on-quarter fall since the global financial crisis in 2008.

The drop in valuations was led by Britain, Iryna Pylypchuk, director of research and market information at INREV, told a media briefing.

More frequent valuations in Britain than in Europe mean UK real estate “responds to market sentiment very quickly”, she says.

UK pension schemes rushed to sell property and other assets due to a liquidity crisis in late September.

This, Pylypchuk says, likely contributed to the fall in values.