LONDON (Reuters) – More than a third of European investors plan to cut allocations to real estate over the next two years, trade body INREV said on Wednesday, as rising interest rates and falling valuations make the sector less attractive decline.
37% of European investors intend to reduce their risk exposure compared to % in North America and % in Asia Pacific 5% of investors, according to INREV, own nearly 84 million euros ($867.84 million) assets under management.
At the beginning of 2022, only 4% of European investors planned to cut spending last year, the survey showed.
INREV is the European Association of Investors in Non-listed Real Estate Vehicles.
European markets have been hit particularly hard by inflation and the energy crisis caused by the war in Ukraine.
Rising interest rates are increasing the cost of leveraging — or borrowing — to invest in real estate, while making other markets such as fixed income more attractive than before, industry experts say.
European investors currently have .8% real estate investment, which is higher than .5% target configuration, INREV survey shows. The sharp drop in prices of other asset classes last year meant real estate was overrepresented in investors’ portfolios, the report said.
European unlisted real estate sector down 1.6% 2022 capital value in Q3, since 867 GFC largest quarter-on-quarter decline.
Iryna Pylypchuk, director of research and market information at INREV, told a media briefing that the decline in valuations was largely due to the UK.
Valuations are more frequent in the UK than in Europe, which means UK real estate “responses very quickly to market sentiment”, she said. Pylypchuk said that could lead to a drop in value.