Institutional investor allocations to real estate remain stable globally, with the current allocation standing at 8.7%, just 30 basis points below the target allocation of 9.0%, underscoring the asset class’s continued importance for institutional capital in the coming year, according to a recent survey.

Approximately 36% of institutional investors anticipate maintaining their current real estate allocations over the next two years, while another 36% expect an increase, and 29% foresee a decrease, finds the 2025 Investment Intentions Survey published by Anrew, Inrev and Prea, three associations that represent property investors.

This indicates a relative stability in real estate allocations, particularly among Asia-Pacific investors. In this region, real estate allocations are projected to remain steady, with an average of 5.0% of portfolios currently allocated to real estate, compared with a target allocation at 5.4%.

While diversification continues to be the primary rationale for allocating to real estate, macroeconomic and geopolitical risks, the survey indicates, are emerging as significant concerns for global investments in 2025, with on-going conflicts across various regions as sources of instability. Additionally, potential shifts in US policy could influence the global economic outlook, affecting growth, inflation, supply chains and financial markets.

For the second consecutive year, value-added investments are the most favoured style, with 62% of respondents identifying them as offering the best risk-adjusted performance prospects for Asia-Pacific investors in 2025.

Investors continued prefer the residential and industrial/logistics sectors, the survey reveals, with 91% and 83% of respondents favouring these sectors, respectively. Notably, the residential sector has surpassed the industrial/logistics sector to take the top spot, while the office sector remains in third place with 70% support.

Australia, Japan favoured

The top three city/sector combinations for 2025 investments continue to be dominated by the institutional markets of Australia and Japan.

Tokyo residential, Sydney residential and Sydney industrial/logistics are tied for the top position, with each favoured by 70% of respondents as a preferred city/sector combination for Asia-Pacific investment in 2025.

This ranking further emphasizes the residential sector’s  prominence, with two out of the top three combinations representing residential investments, solidifying its status as the most preferred sector for the year.

ESG embraced by Asia-Pacific

Environmental, social and governance ( ESG ) considerations, the survey notes, are now firmly embedded in investment decisions as investors move into 2025. A significant majority of investors ( 78% ) prioritize sustainable investments before committing to non-listed real estate funds.

For Asia-Pacific based respondents, key considerations include environmentally and/or socially responsible investments, a fund’s diversity programme, and net-zero commitments.

Looking at the net-zero commitments of the investors, globally, 56% of investors, the survey points out, have pledged to achieve net zero, although most have set target dates between 2041 and 2050, reflecting the perception that this remains a long-term objective.

“The survey reflects institutional investors’ increasing inclination toward value-added strategies to enhance returns,” says Charles Haase, Anrev’s CEO. “It is also unsurprising that institutional investors continue to favour the well-established and stable markets of Australia and Japan. As we navigate a rapidly evolving global landscape characterized by macroeconomic and geopolitical challenges, non-listed real estate remains a highly relevant and resilient component of institutional portfolios.”