The gap between target investor allocations to real estate and actual allocations has narrowed significantly, according to the latest INREV investment intentions survey.

Average investor allocations to real estate increased to 10% from 8.9% in 2018, against an increase in target allocations from 10.2% to 10.4%.

Despite this, investors still indicated that they planned to invest a minimum of €72.4bn of new capital into real estate in 2019 according to the annual survey of more than 150 major investors produced by INREV, ANREV and PREA.

For the first time this year’s survey was entirely focused on international investors and funds of funds and found that some 50% of investors will increase their allocations to real estate over the next two years, while only 9.3% expect to decrease their allocations, and 40.7% anticipate no change.

Brexit impact

On a regional basis, the majority of European investors expect to increase their allocations, while most of those from Asia Pacific and North America expect no change.

The UK has slipped from top spot as destination of preference for investors, coming in second at 64.6% behind Germany at 66.7% but still ahead of France at 62.5%. However, the UK remains top among funds of funds managers with the Netherlands second followed by Spain.

Read our full range of 2019 forecasts for real estate here 

For investors targeting Europe, there’s been a significant shift in favour of core, which rose from 31.8% to 39.1%, while opportunity dropped from 18.8% to 9.8%. Value-added remains the preferred investment style overall, with 51.1% of investors still attracted to risk-adjusted return prospects.

Commenting on the findings, Lonneke Löwik, INREV’s chief executive, said: “With considerable amounts of cash continuing to flow into the market, investors are clearly focused on long-term investing. But, given that real estate cycles are typically 10 years one can say that we’re now in the late stage of the current cycle.

”The key questions raised are how are investors preparing themselves for an inevitable rise in interest rates, and how will this affect their investment decisions this year and their intentions to increase allocations beyond 2019?”

In terms of sector allocation, offices remain most popular, selected by 93.8% of investors, with retail remaining popular among many despite a tough year for the high street with three quarters of respondents still planning to invest in the sector. Alongside that residential was a target sector for 70.8% and industrial for 60.4% with diversification seeing increasing intentions to commit to alternatives like student accommodation (33.3%) and healthcare (31.3%).