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Analysis

Global public investors continuing to increase real estate holdings

by William Baunton

Tue 30 Sep 2014

Global public investors continuing to increase real estate holdings Enlarge Chart loading Image

What the chart shows: Real estate investments of Första AP-fonden (AP1), Future Fund (FF) and Norges Bank Investment Management (NBIM) from 2008-13.

Why it is important: Global public investors have been making headlines recently with large real estate purchases. Jones Lang LaSalle, the global property consultant, believes direct investment in real estate markets by pension funds and sovereign wealth funds is set to double over the next decade. Two weeks ago, NBIM made a move for Blackstone Group’s 1095 Sixth Avenue in New York worth an estimated $2.25bn following a $1.5bn, 45% stake in 601 Lexington in the same city. In the space of four years, NBIM has created an $8.5bn real estate portfolio, making up 1% of its total holdings. NBIM has stated it wishes to allocate 5% in real estate and expects to invest 1% of the fund in each of the next three years in private real estate markets. In 2013, its real estate holdings achieved an annual return of 11.8%, and returned 2% and 3% in Q1 and Q2 of this year respectively.

The Australian Future Fund meanwhile has maintained its real estate holdings at around $5bn for the last few years, after increasing its allocation from 2008 to 2011 from a holding of less than $1bn.

Första AP-fonden (AP1), one of five buffer funds in the Swedish national income pension system, has also increased its real-estate portfolio every year for the last five years. It invests in the asset class, like others, to make its portfolio more ‘robust’ and consists mainly of the real estate company Willhem (100% ownership), Cityhold Property (50% ownership) and the partly owned Vasakronan. Real estate is becoming more attractive to global public investors for its ability to cushion business cycle volatility and also offer income streams that usually rise with inflation.

Another prominent GPI, OMERS, one of Canada’s leading pension funds, has begun buying up real estate in Paris through its property arm Oxford Properties, marking the beginning of an estimated $1.3bn spree in the French capital; it already owns nearly $4bn of property in London.

Sources: Annual reports and Financial Times