Institutional real estate investors can choose from a very wide range of real estate fund products available for subscription at the moment. Among the 264 real estate funds available for subscription, the investment focus is currently on Germany and Europe. At the same time, there exists a wide variety of investment opportunities outside Europe, so that the implementation of an international investment strategy continues to be a viable alternative. The spectrum of overseas investment funds focusing on the US real estate market is particularly rich. With 50 funds available for subscription, this group ranked third. While the products focusing on the German market tend to limit themselves to specific types of use, investments outside Germany tend to follow diversified strategies. As far as single types of use in Germany confirmed, residential real estate investment funds take the lead, well ahead of office, logistics and retail real estate funds.
These are the key findings of the real estate fund manager survey conducted by real estate consultancy firm Wüest Partner Deutschland. For the purpose of the survey, the company polled 100 national and international managers that offer, or used to offer, investment products for German institutional investors, interviewing them about their investable investment products. The findings are based on a response rate of around 70 percent. The poll was conducted between June and late August of this year.
If you take the totality of investible products, Germany and Europe emerge as the most important investment destinations with 63 and 58 investment funds, respectively. The United States rank third with 50 real estate funds. “The high number of US products available for subscription is explained by the many equity investment options involving evergreen funds as well as smaller equity investment programs,” elaborated Stefan Stute, Director and Head of Investment Consulting at Wüest Partner Deutschland. When applying the criterion of whether a given investment product is classifiable under the German Investment Ordinance (AnlV)—an important criterion for German institutional investors—the investible fund universe shrinks to 17 equity investment options. The range of products for the “global” and “Asia-Pacific” regions is surprisingly high with 15 and 10 investment funds, respectively. Among the funds focusing on single countries, the United Kingdom stands out with 15 products.
Residential the Leading Type of Use
Well over half (118) of all subscription funds pursue diversified strategies, which means that a given fund invests in properties of various types of use. Among the “pure type” investment funds, i. e. funds that focus on a single type of use, pure residential investment funds dominate the field with 51 products. Roughly half as many funds pursue a pure office strategy (27 products). Logistics and retail are on a level with 19 funds each, although it should be added that the retail fund segment breaks down into subsegments. In the general overview of use types, hotel products account for only five investment funds while another five funds follow a shopping-centre strategy.
A drilldown of the group of investment funds that focus on Germany returns a very different distribution: Here, the products focusing on residential real estate claim a share of 31 percent, making it the largest group of funds. The second-largest group with a share of 25 percent is composed of office products. In addition, the use-type segments “retail parks” and diversified strategies also account for a substantial range of products. Surprisingly low with just three products is the share of pure logistics funds.
Focus Remains on Core Products, with the Exception of the United States
As far as the risk profiles of the available products go, the survey returned a clear picture: More than two out of three products (68 percent) belong in the core segment. As Stefan Stute said: “For most of the institutional investors, a secure cash flow continues to be the key investment factor. Value-oriented investment strategies that focus primarily on the realisation of profits and less on regular payouts currently account for a share of around 25 percent in the entire investment universe.”
A look at the Germany-focused funds returns an even starker picture: Three out of every four products (75 percent) that are available for Germany pursue income-oriented core strategies.
The target return expectations of real estate funds for the entire holding period at the time of the fund launch (IRR p.a.) average 4.3 percent for the investment region of Germany in the residential segment. Significantly higher target returns are expected from office real estate with 6.7 percent and from retail parks with 5.5 percent. Residential property investment funds focusing on Europe are expected to return 5.2 percent. Diversified products project a target return of 7.0 percent, compared to an IRR of 6.7 percent that logistics real estate funds aim for. Stute elaborated: “The target return expectations reported back to us by the investment managers reveal a considerable spread. This calls for a differentiated assessment. But on the whole, the target benchmarks show that even defensive residential strategies will generate attractive returns when leveraged.”
Source : Wüest Partner Deutschland