This article is from the Australian Property Journal archive
INVESTORS allocation to the real estate asset class in 2023 looks to remain relatively unchanged over the year as they assess the ongoing global economic and geopolitical turmoil, and a divided US Congress and the country hitting it debt ceiling.
According to the 2023 Investment Intentions Survey published today by ANREV, INREV and PREA, globally institutional investors will maintain their allocations in the asset class this year.
“The 2023 Investment Intentions Survey is reflecting Institutional investor’s reaction to the global economic and geopolitical turmoil,” said Amélie Delaunay, director of research and professional standards at ANREV.
The gap between current allocations to real estate and target allocations is very slim at just 20 basis points, at 10.2% and 10.4% respectively.
On top of this, the split between investors expecting to increase their allocation and those expecting to decrease their allocation is roughly split, revealing further stability stemming from the current market uncertainty.
“The denominator effect is affecting investors in their allocation, but it is reassuring to see that still 88% of them are expecting to deploy capital in 2023. Investors are also refocusing their investment on fewer geographies in the region with China being excluded,” added Delaunay.
Institutional investors in the Asia Pacific region did reveal a greater gap between the current real estate allocation at 6.3% and the target of 8.3%, indicating more capital inflow into the region.
This compared to Europe’s current allocation of 10.8% and reduce target of 10.5% and North America’s current 12.0% and 12.7% target.
The survey also revealed that institutional investors are increasingly placing importance on inflation hedging, with inflation in joint position with interest rate policy as the top issue impacting investment at 94%, followed by geopolitical risk at 84%.
While in 2022 only 15% of institutional investors identified liquidity as a challenge, this has swelled to 38% of those surveyed naming liquidity as a key deterrent to investing.
2023 will also see the residential sector edge out industrial and logistics as the preferred sector for investment, with 83% of investors saying they will invest in residential compared to 76% indicating I&L.
This has led to a shift in the top three positions for the preferred city and sector combination for APAC in 2023.
Sydney residential took over the top spot at 62%, followed by Melbourne residential at 59% and Sydney office at 55%.
Office comes in as the third preferred sector in 2023 at 72%, with retail at 38%, healthcare at 31%, development and student accommodation both at 28% and “other” at 21%.
In the Asia Pacific, Sydney and Melbourne also surpassed Tokyo as the top spots for investment, with Sydney at 86%, Melbourne at 83% and Tokyo at 66%. While Seoul took over as the fourth spot, pushing Osaka into fifth position.
ESG is still being indicated as an important factor for investments, with 75% of APAC investors reporting to consider whether a fund is an environmentally and/or socially responsible investment, with 68% looking for a Net Zero Carbon Commitment.
“ESG considerations, including environmentally and/ or socially responsible investments and net zero carbon commitments, are now well-established considerations when investing in the Asia Pacific region,” said Delaunay.
Asia Pacific investors were the highest proportion reporting the importance of promoting ESG, with Europe coming in at 73% and North America at 44%.
Meanwhile 2023 will present new challenges in the global economy following the US midterm elections. The country hit its debt ceiling on Thursday of $US31.4 trillion. The new makeup of the US Congress means a battle is brewing between Republicans and Democrats to reach an agreement and raise the ceiling in order to avoid a credit default for the first time ever.
In 2011 the delay in reaching an agreement resulted in credit ratings agency S&P downgrading the country’s rating – a first for the US government. Government analysts estimate the issue added to the US’ cost of borrowing by at least $US1.3bn.
