- Strong focus on driving value through smart asset management: 85% of investors expect an increase in brown-to-green development, while 66% anticipate greater investment in refurbishment capex
- ESG firmly embedded in decision-making: nearly 90% of investors capture and use the ESG data of their investments, with 70% viewing ESG criteria as an important part of the investment process
- Investors more cautious on expanding real estate portfolios in continued challenging market: over half of investors intend to keep real estate allocations constant over the next five years
- Logistics and residential remain at the top of investors' wish list as more than 20% plan to increase their allocations in each of these asset classes
Augsburg, 3 July 2023. PATRIZIA, a leading partner for global real assets, today released the real estate trends from its 3rd annual Client Survey, which is based on the views of over 120 respondents from its international institutional investor base. The results show a clear trend towards generating value through active asset management, with a particular focus on decarbonisation initiatives and ESG data collection, as well as a shift in focus to value-add strategies over the next five years.
Philipp Schaper, CEO European Real Estate at PATRIZIA, said: “Our survey clearly shows the impact that rising interest rates and economic uncertainty are having on investor sentiment. However, more importantly it also underlines our conviction for driving the long-term value of real estate through an active asset management strategy supported by a data-led approach. Despite the short-term volatility, we anticipate the current market conditions, with a widening dual funding gap of rising decarbonisation and debt costs, to offer exciting investment opportunities. Investment managers with a rock-solid balance sheet and exceptional asset management and development capabilities like PATRIZIA are in a strong position to create most value.”
Accelerating the transition from brown to green
According to the survey, 85% of investors believe brown-to-green development will increase over the next 12 months, of which nearly a quarter expect a significant increase. At the same time, two out of three investors anticipate an uplift in capital expenditure and refurbishment programmes, reflecting growing investor focus on value creation through hands-on asset management.
Supporting the stronger focus on asset management, the results also show a shift in strategy and risk appetite, with debt, value-add and opportunistic ranked as the top three strategies in which investors expect to increase allocations most over the next five years. These views underline a general trend towards the modernisation of European real estate stock, where around 65% of office buildings were built before 2000.
Market environment creates caution on expanding real estate portfolios
This year’s survey indicates that investors are more cautious on expanding their real estate allocations, reflecting the uncertainty in the current market environment. The majority of investors (55%) intend to keep their real estate portfolios unchanged, with around a fifth planning an increase in allocations and 28% intending to decrease over the next five years. In comparison, last year more than 60% of investors said they expected to increase their real estate portfolios over the next five years.
On wider market sentiment, over half of investors anticipate that total investment returns will fall over the next 12 months, while 66% expect fewer transactions in the same period. However, investors remain confident about the resilient income profile of real estate, with 64% believing there will be an increase in rents over the course of the year, offsetting an expected sharp rise in financing costs.
When it comes to expanding their real estate portfolios, investors continue to focus on logistics and residential for growth. More than 20% of investors plan to increase the weighting of each of these asset classes over the next five years, while they expect to continue decreasing their exposure to retail and offices.
Integrating the ‘E’ in ESG has become industry standard
When looking at investors’ views towards Environmental, Social and Governance topics, the survey shows a continuing upward trend on the importance of ESG in their decision-making.
Of those surveyed, nearly 90% said they now collect and use the ESG data from their real estate investments (+17% y-o-y). Likewise, 70% said ESG criteria are an important part of their investment process and expect new investments to consider ESG objectives, for example Article 8 funds according to EU Sustainable Finance Disclosure Regulation. More than half of investors also said they now evaluate ‘impact’ along risk and return in their decision-making for investments.
However, the main focus for investors continues to be on measuring their climate impact. Eighty two percent said they will track the energy consumption of their real estate investments over the next five years (+19% y-o-y). Over the same period, nearly three quarters will measure direct (Scope 1) CO2 emissions (+12% y-o-y), 65% will track indirect (Scope 2) CO2 emissions (+67% y-o-y) and 46% will measure Scope 3 CO2 emissions along their value chain (+40% y-o-y).
Mathieu Elshout, Head of Sustainability & Impact Investing at PATRIZIA, comments: “Our investor survey underlines just how committed our clients are to sustainability and the decarbonisation of the built environment, which is a global megatrend underpinning our investment philosophy at PATRIZIA. It’s hugely encouraging to see our clients firmly place ESG at the heart of the investment process as already more than half of our clients want us to consider ‘impact’ alongside risk and return in their investments. By leveraging our expertise in asset management and sustainability, our investors can accelerate the green transition of their assets, which will be instrumental in preserving income and the long-term value of their investments. And with expectations around ESG intensifying, it’s vital we continue broadening our product portfolio to include ESG-led strategies like our dedicated impact strategy and our sustainable infrastructure strategy in APAC.”
PATRIZIA: A leading partner for global real assets
With operations around the world, PATRIZIA has been offering investment opportunities in real estate and infrastructure assets for institutional, semi-professional and private investors for 39 years. PATRIZIA manages more than EUR 58 billion in assets and employs over 1,000 professionals at 28 locations worldwide. PATRIZIA is making an impact since 1984 by helping children in need, since 1992 in close collaboration with Bunter Kreis (“colourful circle”) in Germany for aftercare of children with severe diseases and since 1999 through its support for the PATRIZIA Foundation. The PATRIZIA Foundation has helped around 280,000 children in need worldwide gain access to education and thus, has given them the chance of a better life over the last 24 years. You can find further information at www.patrizia.ag
Phone: +44 7881 276427
 The online survey was conducted between March – May among PATRIZIA’s international institutional client base and had 122 respondents.
2 PATRIZIA, Colliers, MSCI | November 2022.