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Suggested vs. Actual Institutional Allocattion to Real Estate in Europe: A Matter of Size

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  • Martin Hoesli

    ()

  • Jon Lekander

    ()

Abstract

The allocation to real estate by institutional investors has increased in recent years and as a result the gap between suggested and actual allocations has narrowed. The increased inflow of capital to the real estate market is suggested to be a function of two factors: An increased focus on absolute return target investments amongst institutional investors and an increased target allocation to real estate. We argue that the increased target allocation is made possible mainly by the development of new investment vehicles, in particular of private real estate funds, but also of the growing integration of economic regions and of other factors such as the development of investment benchmarks. The flows needed for the actual allocation by European institutional investors to match the suggested allocation constitute at least 31% of the real estate equity universe held by owner occupiers. We estimate that seven years would be needed to reach the target allocation, but it is unlikely that sufficient investment opportunities will arise unless the willingness of owner occupiers to outsource their real estate assets increases.

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Bibliographic Info

Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp149.

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Date of creation: Jun 2005
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Handle: RePEc:fam:rpseri:rp149

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Keywords: real estate allocation; market transparency; private real estate; flows;

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  1. Youguo Liang & F.C. Neil Myer & James R. Webb, 1996. "The Bootstrap Efficient Frontier for Mixed-Asset Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(2), pages 247-256.
  2. Gregory H. Chun & J. Sa-Aadu & James D. Shilling, 2004. "The Role of Real Estate in an Institutional Investor's Portfolio Revisited," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 295-320, November.
  3. Gregory H. Chun & Brian A. Ciochetti & James D. Shilling, 2000. "Pension-Plan Real Estate Investment in an Asset-Liability Framework," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(3), pages 467-491.
  4. Foort HAMELINK & Martin HOESLI, 2003. "Maximum Drawdown and the Allocation to Real Estate," FAME Research Paper Series rp87, International Center for Financial Asset Management and Engineering.
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