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Real Estate

Average target real estate allocations surpass 10% for first time — survey

The average target allocation to real estate by global institutional investors has exceeded 10% for the first time, said a survey from Hodes Weill & Associates and Cornell University's Baker Program in Real Estate.

According to the 2017 Institutional Real Estate Allocations Monitor, among the 244 global institutional investors with aggregate assets of $11.5 trillion recorded for the report, the average target allocation in 2017 was 10.1%, up from 9.9% in 2016. About 44% of the institutions now have target allocations to real estate exceeding 10%, up from 27% and 18% in 2016 and 2015, respectively.

Actual allocations, however, remained underweight to targets, according to the survey. About 60% of surveyed institutions said they were underweight to real estate, up from 50% in 2016. Overall, the average actual allocation is 9.1%, 100 basis points below the average target.

By region, Asia-Pacific has the highest average target at 11.5% (with an average actual allocation of 10.2%), followed by the Americas at 10.4% (9.4%), and Europe, the Middle East and Africa at 9% (8.1%).

The average long-term target return to real estate declined to 8.2% in 2017 from 8.4% in 2016, according to the survey. The actual average return for 2016 was 8.6%, down from 11% in 2015. The average aggregate annualized return for the previous five years was 10.4%.

Institutional investors in 28 countries were surveyed earlier this year representing pension funds, endowments and foundations.

Hodes Weill spokesman Jason Chudoba could not be immediately reached to provide further information.