KEY FINDINGS OF THE 2024 INSTITUTIONAL REAL ESTATE ALLOCATIONS MONITOR

​

1. Institutions held target allocations flat for the second consecutive year but expect to lower target allocations over the next 12 months. Target allocations remained at 10.8% in 2024, marking the second consecutive year that target allocations were flat year-over-year. Moreover, institutions expect to lower target allocations by an average of 10 bps over the next 12 months. Overall, target allocations are up 190 basis points since 2013, representing an increase of over 20%.
    

2. Over the past 12 months, institutional portfolios have shifted from over- to under-allocated to real estate, as the denominator effect has reversed. As public equities and other asset allocations saw strong performance in 2024 and write-downs in real estate portfolios continued, institutional portfolios swung to 60 bps under-allocated (as compared to 2023 when the majority of institutions were at or over-allocated). Approximately 27% of institutions remain over-allocated to real estate, down from 39% in 2023.
    

3. Institutional real estate portfolios delivered negative returns in 2023, which followed a 10-year period of substantial outperformance relative to target returns. As real estate portfolios took continued write-downs in 2023, institutions reported an average real estate portfolio return of -1.4%. This follows 10 years of strong outperformance, a period of time during which portfolios delivered an average return of 10.1%, 180 bps in excess of the average target return.
    

4. Conviction remains moderately positive, albeit down slightly year-over-year, as institutions are optimistic about investment opportunities over the next several years. Institutions have remained largely on the sidelines over the past 24 months due to persistent concerns regarding inflation, high interest rates, low transaction volumes and uncertainty as to the direction of the economy. As transaction volumes rebound, institutions report that they are gaining conviction about a market bottom and the opportunity to allocate capital to new investments.
    

5. While a growing number of institutions are moving portfolio management in-house, the vast majority of institutions are reliant on third-party managers and continue to allocate to commingled funds. Overall, 93% of institutions report outsourcing all or a portion of their portfolio to third-party managers. Approximately 64% of investments are expected to be allocated to existing manager relationships, continuing a trend of consolidation in the industry. Emerging managers are at a particular disadvantage, as a nominal 13% of institutions expect to allocate to first-time managers.
    

6. Institutions in the Americas and APAC continue to favor higher return strategies, including value-add and opportunistic, while interest in core strategies remains high in EMEA. Return expectations have risen, driven by appetite to take advantage of market distress and dislocation. Value-add continues to be the preferred strategy, with 79% of institutions planning to invest in the strategy, followed by opportunistic strategies at 73%.
    

7. North America remains the preferred destination for capital allocations; however, appetite for investing cross-border has decreased across all regions. Institutions in APAC continue to be the most active cross-border allocators, with 80% of APAC-based institutions intending to invest outside of their domestic markets, followed by 75% of EMEA-based institutions and 65% of institutions in the Americas.
    

8. As transaction volumes remain at a cyclical low, capital allocations have shifted to direct investments, joint ventures and separate accounts. While the percentage of institutions investing in closed-end funds stayed the same year-over-year, institutions reported increased appetite for direct investments, joint ventures and separate accounts. Appetite for open-end funds decreased slightly year-over-year.
    

9. Institutions were more active allocating capital to REITs in 2023, as investors looked to capitalize on discrepancies between public and private market valuations. Approximately 39% of institutions actively invested in REITs in 2023, with a notable increase from SWFs & GEs.
    

10. European and Australian institutions continue to lead the market in terms of implementing ESG policies. Institutions in the US lag behind their peers, with only 23% reporting their investment processes are influenced by their ESG policies.