17/02/2011
By Matt Ritchie
Institutional investors in Sweden show a "marked preference" for the domestic market in their real estate investments, according to a survey by European Association for Investors in Non-listed Real Estate Vehicles (INREV).
In a statement announcing the results of the survey, INREV said that less than 20% of the total real estate exposure of Sweden's institutional investors is held outside Sweden.
By contrast, investors from the Netherlands and Germany have 57% and 35% of their total real estate investments in non-domestic markets, respectively and only the UK has a smaller exposure to non-domestic real estate investments than Sweden, with a total of 13%, INREV said.
Director research and market information at INREV Lonneke Löwik said the strong domestic focus might be partly explained by the experience of Swedish investors in the 80s, who saw real estate investments abroad plummet in value.
“As a result, investors are now much more cautious about non-domestic markets. Sweden’s relatively strong domestic economy also adds to the desire to stay at home,” Löwik said.
The survey suggests that the current vogue for domestic direct real estate is only set to become a more “prominent and enduring” strategy, especially among Swedish life insurance funds.
INREV said that institutional investors see “little advantage” in portfolio diversification through non-listed real estate investments. Rather, they view the country’s regional economic differences and the number of different real estate sectors within Sweden as providing plenty of opportunities for a diversified portfolio without venturing abroad.
More generally, respondents to the survey expressed reservations about non-listed real estate investments owing to a perceived lack of control and influence over the investment and high cost. However, INREV said several investors indicated that they would consider a non-listed approach as part of their overall investment strategy in the future, citing access to expert or specialist management as a key benefit.
The survey follows recent examinations of the non-listed real estate markets in the UK, Germany and the Netherlands, which INREV said provides a "new and interesting" perspective on the strategic approaches taken across all four countries.
Currently, non-listed real estate makes up just 10% of Swedish investors’ portfolios on average. This is in sharp contrast to Dutch institutional investors, for example, who have 34% of their total real estate investments allocated to the non-listed sector.
The survey shows that all funds in Sweden are currently under-exposed to real estate by an average of 1.5% against their target allocations.
“It’s a question of culture and confidence. Of course all four markets are starting from different positions, with arguably the Netherlands being the most developed real estate market and, on this evidence, Sweden the least. The market share of non-listed real estate is partly a reflection of this and I believe non-listed has a role to play in a diverse investment strategy and that it should remain on a par with direct,” Löwik concluded.
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