According to real estate investment big hitters Jones Lang La Salle, the number of pension and sovereign wealth funds (SWF's) actively and directly investing in real estate is set to double in the coming decade as more and more of the funds turn their attention to the benefits of real estate investment.
The report from JLLS comes following similar findings in a JPMorgan Asset Management survey of 2500 institutional investors with assets worth over $7bn, which said that 43% of all institutional investors are beginning to work real estate into their portfolios. JLLS complemented this by saying that it is aware of a growing number of pension funds and SWFs that are considering making allocations to real estate for the first time.
However, interest continues to focus heavily on just three cities according to the findings, London, New York and Hong Kong. All that investment going into such a small area of the world brings fears that a bubble could form in the "super prime" office and retail properties that are widely desired by pension funds and SWFs as a match for their long-term liabilities – if it hasn't already.
"Even in those countries where the broader economic outlook is challenging, the sheer weight of investor interest in 'blue-chip' or 'super prime' properties is continuing to push values up and there is a danger that yields will compress to uncompetitive levels," says the JLLS report.
The firm sees no end to the upward price pressures as pension funds in emerging markets become much more active in global property as they look to safe-guard their expanding pools of domestic savings.
Thankfully recent deals suggest some of the big players are shifting their focus away from the prime sectors. Such as Norway's oil wealth fund, which bought Credit Suisse's headquarters in Zurich for SFr 1bn in November has revealed its plans to target industrial properties in Europe, marking a departure from its previous strategy.
The world's largest sovereign wealth fund Norges Bank Investment Management currently has around 0.3 per cent of its assets in real estate but it is struggling to reach its target of 5 per cent. The fund plans to invest about $11bn in the US real estate market as it seeks to broaden its property portfolio.
- Thursday 10 January 2013