Hodes Weill, Cornell University: Institutional Target Allocations to Real Estate Decline

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Institutional investors decreased their target allocations to real estate by 10 basis points in 2025 to 10.7%–the first decline in more than a decade–a new report from Hodes Weill & Assocs. and Cornell University found.

But despite this recent reduction, institutions expect to increase target allocations by 10 basis points in 2026, led by EMEA-based institutions that report the highest conviction in the asset class this year, the Hodes Weill and Cornell University Institutional Real Estate Allocations Monitor said.

Institutions held allocations steady from 2022 through 2024, the report noted. But they currently report being under allocated by 90 basis points–up from 60 basis points last year–creating the potential for acceleration in capital flows. “Investor conviction is also improving, with institutions seeing attractive opportunities and a favorable entry point for deploying capital over the next several years,” the report said.

The decline in target allocations follows a three-year plateau at 10.8% from 2022 through 2024, ending a nearly decade-long trend that saw target allocations increase more than 20% between 2013 and 2022. “The reduction in target allocations, which was predicted in last year’s report, is the result of market uncertainty combined with competition from other asset allocations, in particular infrastructure and private credit,” the report noted. “However, institutions remain significantly under allocated to real estate, with the gap between target and actual allocations widening to 90 basis points in 2025.” The report said this margin represents a return to the average level of under investment over the past 10 years and implies a substantial runway for renewed investment activity, with institutions positioned to accelerate their pace of deployment over the next several years.

“While we’re seeing the first decline in target allocations since our survey began, this is consistent with the expected tactical pause we reported last year rather than a strategic shift away from real estate,” said Douglas Weill, managing partner at Hodes Weill.

“Importantly, institutions remain meaningfully under allocated to the asset class, and the 90-basis point margin reflects the widest gap we’ve seen since 2021,” Weill added. “As market conditions stabilize, the pent-up demand for deployment is expected to support healthier transaction volumes and a more active fundraising environment in 2026. Institutions are taking a measured approach, but their long-term conviction in the asset class remains strong, particularly as valuations appear to have bottomed and transaction activity accelerates.”