Institutional investors are reducing their target allocations to real estate for the first time in more than a decade, according to a report from PwC and the Urban Land Institute (ULI).
The report showed that global real estate transaction volumes rose 14% to $888.6bn, indicating a recovery in market activity following the slowdown triggered by higher interest rates.
Despite the rebound in transaction volumes, the report suggested that large institutional investors are stepping back from the asset class after more than a decade of increasing allocations. This marked the first decline in target allocations since 2012.
Instead, private wealth, family offices and retail-style investment vehicles are playing a growing role in providing capital to the real estate market. According to the report, this rotation in capital sources is already affecting pricing dynamics and the speed at which assets can be traded.
Structural themes linked to digital infrastructure and technological change are also reshaping investment strategies. Data centres have emerged as one of the most attractive real estate sectors, with demand fuelled by the rapid expansion of AI and cloud computing.
However, investors are increasingly debating potential constraints on further growth in the sector, including limitations on power supply, land availability and the risk of overbuilding in certain markets.
rPoor data quality leads to cancelled real estate investments
Living sectors such as student accommodation, senior housing and other forms of residential real estate are attracting increased attention from investors seeking stable, long-term income streams.
Increased investment in defence supply chains and energy security is expected to support growth in logistics, manufacturing and energy-related assets, potentially reshaping regional investment strategies, according to the data.
The report also highlighted innovation in real estate financing, with tokenisation being explored as a tool for fundraising and capital formation within real assets.
Thomas Veith, global real estate leader, PwC, said: “The sustainable transformation of the industry continues to be in full swing. Real assets are shaping the landscape with a stronger focus on data centres and living. Tokenisation is increasingly being used in fundraising.”
Simon Chinn, vice president, research and advisory services, ULI Europe, said: “This year’s global outlook portrays an industry that is coming to terms with a changing investment landscape dramatically shaped by geopolitics, where the composition of available capital is shifting from institutional sources to new ones, and where strategic thinking and the flexibility to pivot can mean success. In an era where volatility might be our new normal, it’s clear that our industry’s leaders strongly believe in the resilience of real estate despite the current turbulence.”
