Survey: Investors to Lower Capital Commitments to Real Estate

U.S. institutional investors such as pension funds, endowments and foundations plan to reduce their new capital commitments to real estate by 19 percent in 2016, a survey found.

The annual investor survey conducted by Institutional Real Estate Inc. and Kingsley Assocs. said $51 billion in new capital will be directed to the asset class in 2016, down from commitments of $63 billion in 2015.

“The results of the 2016 survey show U.S. investors remain bullish on real estate, and for the sixth consecutive year they believe real estate is the most attractive asset class on a risk-adjusted basis,” said Kingsley Assocs. Principal Jim Woidat. “Investors, however, are becoming somewhat more cautious as the real estate cycle advances and pricing on prime properties has become elevated.”

Institutional Real Estate President and CEO Geoffrey Dohrmann said the “accelerated” investment activity of the past few years means that many investors are at or near their target allocations for real estate. “Uncalled capital–capital that has been committed but not yet invested–increased 34 percent year-over-year to $41 billion,” he said. “For these reasons, a slowdown in new capital commitments makes sense.”

The survey also revealed that U.S. core properties and value-added properties would receive the majority of new real estate investment capital, 34 percent and 31 percent, respectively. U.S. investors also plan to allocate 18 percent of capital to opportunistic investments and 11 percent of capital to foreign investment opportunities.

Survey respondents also indicated that they view most property types as less attractive relative to last year, reflecting the general consensus regarding the ability to find accretive property deals given current asset pricing. Industrial and medical office properties received the highest scores, followed by multifamily, self-storage, office and retail.