INREV, the European association for investors in non-listed real estate vehicles, has released its 2011 investment intentions survey showing Germany has overtaken the UK as the preferred location for investment in non-listed real estate funds.

An online survey of INREV members and participants in the non-listed real estate funds industry carried out over December showed that German retail was the preferred location and sector for 36% of responding investors.

In a statement announcing the outcome of the survey, INREV said that the result signaled a ‘marked shift in approach’ from 2010, when German retail failed to reach the top ten. In contrast, the UK is now seen as less attractive than the German, French and Nordic markets.

The association’s director of research and market information Lonneke Löwik said that over the last two years the UK dominated the rankings with UK retail, UK office and UK Industrial/Logistics included in the top four most preferred country/sector combinations.

“While the UK remains well represented in the top ten, investors seem wary of higher property prices and a slower economic recovery in the UK but attracted by growing confidence in the German and other European markets.”

More than half of respondents said they intend to increase their allocation to the non-listed real estate sector.

There is a “cautious optimism” about the year ahead, with 70% of both investors and fund managers noting adequate supply of investment products and interest in their preferred markets, a turnaround from the 2010 survey.

Half of investors and 58% of fund managers rated the ability to raise capital as less of a problem than in previous years, but 80% of fund of funds managers and fund managers still see capital raising as a significant challenge.

There was a 13 percentage point year-on-year increase in investors preferring a single-country strategy, at 90%. Similarly, 90% of investors prefer a single sector strategy.

The vast majority of investors prefer to be active, at 90%. This is up from 80% last year.

Regulatory issues are increasingly weighing on the minds of fund managers, with 37% identifying regulatory issues as an obstacle compared with 14% in 2010. While no fund of funds managers identified regulatory issues as an obstacle in 2010, this year’s survey found 16% identified the regulatory landscape as an issue.

Overall, Löwik said increasing levels of regulation and the economic hardship of the last two years could have led to expectations of “less than positive” investor sentiment leading into 2011.

“However, our 2011 Investment Intentions Survey indicates encouraging signs about investor confidence in the non-listed real estate sector,” Löwik said.

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