Despite COVID-19, Global Institutions Continue to Increase Allocations to Real Estate, Finds Hodes Weill & Associates and Cornell University

Target allocations to real estate increase 10 basis points year-over-year, reaching 10.6%

Actual portfolio allocations climbed year-over-year from 9.4% to 10.0%, in part due to denominator effect

Despite market uncertainty, institutions expect to be actively allocating to new investments over the next 12-24 months

Appetite increasing for opportunistic strategies, as investors shift focus to distress

NEW YORK--()--Uncertainties related to COVID-19 have not dampened global institutions’ confidence in commercial real estate. In fact, investor sentiment increased for the third straight year, reaching a seven-year high in 2020, according to Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate’s eighth annual Institutional Real Estate Allocations Monitor.

The “Conviction Index” in this year’s survey, which measures institutions’ view of real estate as an investment opportunity from a risk-return standpoint, increased from 5.7 to 5.9. The steady growth in confidence in the asset class reflects the strong returns investors have realized over the last five years, which were particularly attractive in a yield-starved environment. Though actual investment returns declined 30 basis points to 8.5% in 2019, results continue to outpace average target returns of 8.3%.

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Real estate continues to play an important and growing role in institutional portfolios. In addition to favorable investment performance since the global financial crisis, institutions cite the following as reasons for increasing their target allocations: low correlation of investment returns to other asset allocations; favorable operating fundamentals in terms of supply and demand; and the opportunity to generate attractive income yields. Target allocations increased to 10.6% in 2020, up 10 basis points from 2019 and 170 basis points from 2013, when the survey was first conducted. The 10-basis-point increase implies the potential for an additional $80 to $120 billion1 of capital allocations to commercial real estate over the coming years, which should support continued liquidity and asset valuations.

Douglas Weill, Managing Partner at Hodes Weill & Associates, said, “While the impact of COVID-19 and geopolitical issues on commercial real estate remains a concern, institutions anticipate that a potential buying opportunity is emerging as distress and dislocation become more prevalent. We expect that this, combined with rising sentiment in favor of the asset class, will lead to an increase in investment pacing. Moreover, liquidity is expected to increase, which should continue to support asset pricing, transaction volumes and cost of capital. All things considered, real estate continues to provide attractive returns relative to other asset classes in a market defined by prolonged uncertainty.”

While in recent years the survey has found that institutions remain meaningfully under-invested relative to target allocations, this year’s results indicate that the gap is closing. Actual allocations increased meaningfully year-over-year from 9.4% to 10.0%, with institutions under-invested by an average 60 basis points – a marked decrease from the 110 basis points reported in 2019. As the survey was conducted in the months immediately following COVID-19, this may be in part attributed to the denominator effect, as public equities experienced a significant decline in value. However, as public equities have returned to levels at or near prior peak, institutions have indicated that the margin between actual and target allocations has again widened.

When it comes to deploying capital, value-add strategies remain the strongest preference for institutions globally. However, investors are shifting their appetite to higher return, opportunistic strategies to capitalize on anticipated dislocation resulting from the COVID-19 pandemic. APAC investors have led the shift to opportunistic, with 73% of institutions from the region focused on opportunistic investments – up from 40% in 2019. Approximately 75% of Americas-based institutions and 62% of EMEA-based institutions are actively allocating to opportunistic strategies – compared to 65% and 51% in 2019, respectively.

Moreover, while cross-border capital flows remain strong, the percentage of institutions investing outside of their domestic region decreased for the third straight year. This trend is being led by APAC institutions, whose willingness to allocate to strategies outside of their domestic region decreased by 10%. North America continues to be the largest recipient of global capital allocations due to the liquidity and relative stability the region affords, followed by continental Europe.

In discussing the opportunities in real estate, one Americas-based insurance company stated, “The market is bifurcated between the ‘haves and have nots.’ Industrial, data centers, and life science sectors are experiencing strong demand from debt and equity and will likely benefit from cap rate compression. Hotel, retail, and office will continue to face liquidity challenges until we get through COVID and the economy recovers.”

Closed-end funds remain in favor with global institutions, with 82% actively allocating capital to funds. However, allocations to closed-end funds remain 11% below their peak in 2018. Open-end private funds saw a 4% uptick in allocations, with 55% of institutions targeting these investment products. While larger institutions continue to shift allocations to direct investments, separate accounts and joint ventures, 91% of institutions report interest in allocating to private funds – in particular for opportunistic and specialized strategies. Smaller institutions, however, continue to prefer closed- and open-end funds over other types of investment vehicles.

Institutions are outsourcing approximately 85 percent of their new investment allocations to third-party managers, driving continued double-digit percentage growth in assets under management for the investment and fund management industry. They continue to favor allocating capital to existing manager relationships, with 62% of 2020 investments earmarked for groups with which institutions have pre-existing relationships. Conversely, willingness to invest with emerging managers remains low at 12% among all respondents, reflecting a strong preference for established managers during these times of uncertainty.

As capital allocations continue to weight towards larger managers, boutique and mid-cap managers are increasingly pursuing strategic transactions to align with larger, global platforms that provide operational support as well as access to global institutional client relationships. As reported in Hodes Weill’s 2020 Mid-Year M&A Market Review, 11 manager transactions were announced in the first half of 2020 – slightly ahead of pacing in 2019, which saw 19 transactions reported for the full year. In addition to control sales, the industry has seen an increase in minority sale transactions.

As it relates to ESG considerations, 47% of institutions indicate that they have a formal ESG policy, an increase of 14% since Hodes Weill began surveying institutions regarding ESG in 2015. Of note, 63% of institutions in the EMEA region reported that their investment decisions are influenced by ESG policies. Institutions from the Americas have lagged their peers in the industry, with just 22% of institutions reporting that ESG is influencing their investment activities.

The 212 institutions that participated in this year’s survey represent aggregate AUM of US$12.6 trillion and portfolio investments in real estate totaling approximately US$1.3 trillion.

About Hodes Weill & Associates:

Hodes Weill & Associates is a leading, global advisory firm focused on the real estate investment and funds management industry.* The firm has offices in New York, Denver, Hong Kong and London. Founded in 2009, Hodes Weill provides institutional capital raising for funds, transactions, co-investments and separate accounts; M&A, strategic and restructuring advisory services; and fairness and valuation analysis. Clients include investment and fund managers, institutional investors, lenders, property owners and other participants in the institutional real estate market. For more information, please contact or visit

*All U.S. regulated capital market and securities advisory services are provided by Hodes Weill Securities, LLC, a registered broker-dealer with the SEC, and a member of FINRA and SIPC, and internationally, by non-U.S. Hodes Weill affiliates.

About Cornell University’s Baker Program in Real Estate

Cornell’s Baker Program in Real Estate is home to the Masters of Professional Studies in Real Estate degree, a comprehensive, graduate-level curriculum that educates the next generation of real estate industry leaders. Cornell is also home to the Cornell Real Estate Council, an extensive network of over 2,000 real estate industry leaders, and host of the annual Cornell Real Estate Conference. For more information, please visit


For informational purposes only. This is not a solicitation to buy or sell any securities or securities products. Please refer to the full report for important disclaimers. The full report can be found at

1 Based on Hodes Weill’s estimate of ±$100 trillion of global AUM based on various public disclosures, research reports, and publications.


ICR on behalf of Hodes Weill
Jason Chudoba, 646-277-1249 |
Megan Kivlehan, 646-677-1807 |


ICR on behalf of Hodes Weill
Jason Chudoba, 646-277-1249 |
Megan Kivlehan, 646-677-1807 |