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UK institutional non-listed market to reach GBP29bn in three years

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The UK institutional non-listed real estate market is set to grow by 20 per cent over the next three years to GBP29bn, according to a report by Inrev.

 

The main source of this growth will be due to an increase in non-domestic investments by pension funds.
 
“Pension funds’ exposure to real estate is currently below targets. Now they are expected to grow to their strategic allocation targets and non-domestic, and therefore non-listed, is likely to be one of the significant beneficiaries of this," says Lonneke Löwik, director of research and market information, Inrev.
 
The Inrev UK Investor Universe report shows that non-listed real estate funds dominate the non-domestic universe and, at almost GBP8bn, account for three quarters of the total capital invested in real estate by UK investors outside of the UK. By comparison, non-listed funds account for 22 per cent of domestic real estate investments.
 
In total, UK life and pension funds’ current non-listed real estate universe is estimated to be GBP23bn, representing two per cent of their total assets and 29 per cent of their global real estate investments.

In total, the UK life and pension funds are estimated to have GBP80bn invested in real estate. This represents seven per cent of their total assets.
 
The report shows that non-listed real estate has become an acceptable and accessible investment approach. All investors in the sample had a mandate for non-listed, with 85 per cent making investments this way.
 
Life funds and the smaller pension funds (<GBP2.5bn) dominate the non-listed real estate universe, although through different approaches. Life funds’ allocations are evenly split between UK specialist and non-domestic vehicles, while the smaller pension funds mainly invest in UK diversified vehicles, with a small proportion in non-domestic and UK specialist vehicles.
 
Non-listed real estate has increasingly become the convenient choice for most small and medium-sized pension funds as they do not have the resources and scale to invest directly. The report shows that most of them invest in core diversified vehicles with a small proportion also pursuing high risk/return strategies.
 
Löwik adds: “Most investors use non-listed funds to improve the diversification of their real estate portfolios and, in particular, to access out-of-reach sectors and sectors where they do not have the expertise to invest directly. The fastest growing area is non-domestic property. Helping investors deploy capital abroad will be a key element to the expansion of non-listed funds.”
 
The study was undertaken in conjunction with the UK’s Investment Property Forum.

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