This article is from the Australian Property Journal archive
GLOBAL institutional investors will continue to target Australian real estate in 2024 with a focus on Sydney and Melbourne residential – looking to capitalise on the population growth and demand for housing.
The joint report released by ANREV, INREV and PREA reveals that overall, institutional investors’ allocations for real estate remain stable globally, according to the 2024 Investment Intentions Survey.
According to the 2024 Investment Intentions Survey there’s a narrow gap of just 20 bps between current (10.6%) and target (10.4%) allocations to real estate.
The real estate asset class retains high relevance for institutional capital during the coming year, the report found.
“Approximately half (45%) of the institutional investors expect their allocation to real estate to remain unchanged over the next two years, with 25% expecting their allocation to increase and 31% expecting a decrease.
The report says this reveals relative stability in real estate allocations with real estate allocation headroom from Asia Pacific investors.
“Asia Pacific investors are the only investors having significant real estate allocation headroom, with an average of 7.1% of investors’ portfolios allocated into real estate vis-à-vis a target allocation at 8.4%.”
Moving into 2024, the ANREV, INREV and PREA report states that diversification of the overall portfolio is ranked as the most important attraction to real estate as an asset class.
“Nevertheless, the current macroeconomic environment is indicated to play a key role on real estate investment plans going forward. Across all investor domiciles, interest rates and inflation are indicated as the two most important factors potentially affecting 2024 investment.”
The survey also found that ESG is now well established in investment decisions going into 2024.
“A majority of investors (79%) are now considering the ESG characteristics of the fund before investing in non-listed real estate funds.”
ANREV, INREV and PREA also found that for Asia Pacific based respondents, most indicated both DEI programmes and sustainable investments were important considerations.
“Looking at the net zero commitments of the investors, globally most investors (59%) have made a commitment to reaching net zero. However, in most cases the target date for reaching net zero is between 2041 and 2050, indicating that most investors consider this to be a goal for the long term.”
The survey says investors’ preferred investment style shifts from core to value added.
“The shift in investors’ appetite for risk is seen across all investor domiciles, with 63% of investors preferring value added style for investment in Asia Pacific in 2024, which is the highest level since 2014.
“In this year’s survey, Asia Pacific investors’ have strongly indicated their preference for higher risk styles. Just over three quarters (78%) of Asia Pacific investors prefer value added strategies and 22% opportunistic strategies, with core style not seen as offering the best risk adjusted performance prospect for investment in the region by Asia Pacific investors in 2024.”
The survey found Japan will be the flavour of 2024 with Tokyo and Osaka closely followed by Sydney and Melbourne being targeted for investment.
“Japan, and its low interest rate environment is the most attractive investment destination in Asia Pacific in 2024 with Tokyo and Osaka concentrating 85% and 70% of investment intentions in the region. Osaka is tied up with Sydney and Melbourne in fourth.”
The survey results also reveal a shift towards the industrial / logistics and residential sector, the two preferred sectors for institutional investors by respectively 93% and 85% of the respondents. The office sector has remained in the third place (67%).
The top three positions for preferred city / sector combination in 2024 investment are dominated by the highly institutional markets in Australia and Japan.
Sydney residential and Tokyo industrial / logistics are tied as top in the ranking with 59% of investors indicating this preference.
Sydney industrial / logistics, and Melbourne industrial / logistics, Melbourne residential, and Tokyo residential are all tied as second place at 56%. Seoul industrial / logistics is the sole city / sector breaching the Japan / Australia stranglehold at the third spot, with more than half of the respondents (52%) indicating their intention to invest.
Amélie Delaunay, ANREV’s Director of Research & Professional Standards, concluded that the 2024 Investment Intentions Survey is reflecting institutional investor’s penchant for high returns as we look past a challenging 2023.
“Notably, institutional investors are shifting their investment preference towards value added style in Asia Pacific while it is unsurprising to observe the Japan market being favoured by investors as an institutional safe haven amid a high interest rate environment.”
