Euro LPs will increase allocations to RE

Despite the turbulence of the credit markets and its impact on Europe’s property markets, LPs will increase their allocations to real estate in the future, according to a report by CBRE. In the long-run, all investors will target an extra €250bn to the asset class.

Institutional investors in Europe are set to increase their allocations to the asset class in the long-term, a report released by Richard Ellis has said.

The report, the European Investment Marketview, unveiled by the real estate services firm during the Expo Real conference in Munich this week, said a “high proportion” of LPs would boost their target allocations to the asset class in a bid to diversify their portfolios following the credit crunch.

The report though stressed the capital would not “be spent immediately. Institutional investors will be looking to build up their exposure over a long period of time and will not enter the market at all until they feel that prices are at or close to fair value.”

It comes as large European investors have increased their exposure to real estate over the past six months, insurance group Allianz, which boosted its allocation to six percent from 3.5 percent, and the Norwegian oil fund (called the Government Pension Fund), which said it planned to invest €13 billion to real estate (an allocation of five percent.)

Overall, investors are expected to pump an additional €250 billion into the European real estate market in the long-term, through all real estate investment platforms and sectors.

The report said real estate investment funds were expected to make up the bulk of the capital being invested with €187 billion expected to be targeted to the asset class.

Sovereign wealth funds followed with estimates they could invest around €40 billion in the long-term, while German open-ended funds were also set to be big investors in European real estate in the future with estimates they could invest up to €20 billion. “Recovery”, distressed funds are expected to pump around €30 billion into the property markets.

The report went on to state that the credit crunch was impacting the office sector, with average office vacancy rates across Europe increasing for the first time since 2004, and rental growth slowing sharply in all three major property sectors, including office, retail and industrial.