Institutional Investors Increased Allocation to Real Estate This Year, Remain Under-Allocated

Institutional investors increased their target allocation to commercial real estate this year to 10.6 percent from 10.5 percent in 2019 and are now 170 basis points higher than they were 12 years ago.

But they largely remain under-allocated to the asset class, relative to their target allocations, which should help beef up what so far has been a lackluster year in terms of sales transaction volumes, which through October were down 40 percent from last year.

That's according to a survey of institutional investors conducted by Hodes Weill & Associates and Cornell University's Baker Program in Real Estate. Hodes Weill, a New York advisory firm, received responses for its survey from 212 investors, or 7 percent of those it surveyed. The respondents, scattered among 29 countries, collectively have $12.6 trillion of assets under management, including $1.3 trillion of commercial real estate. The annual survey is the eighth conducted by Hodes Weill.

The survey was conducted between June and October, so responses likely were heavily influenced by the market disruptions caused by the coronavirus pandemic.

The thinking is that investors' allocations to real estate should grow as their overall portfolios have increased in value, largely because equity valuations have skyrocketed. Meanwhile, the pandemic caused a stifling of acquisition activity.

Doug Weill, co-founder and managing partner of Hodes Weill, noted that over the past five to seven years investors consistently have been about 100 bps underinvested in real estate, relative to their target allocations. "They're always playing catch-up," he said.

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