This year, investors are more likely to focus on strategies that offer regular income opportunities. · The proportion looking to target core and core-plus strategies this year rose to 55% and 28%, respectively. More investors are targeting core assets than any other strategy, a reversal from 12 months ago.

At the same time, the proportion targeting debt strategies more than doubled, from 10% in December '15 to 21% a year later, Preqin says. Overall, investors remain committed to real estate in the longer term, with 36% intending to increase their allocations over time, compared to just 10% that aim to reduce them.

“Institutional investors have continued to see strong returns from their real estate portfolios, and remain committed to the asset class as a result,” says Andrew Moylan, head of real estate products at Preqin. He notes that fundraising and deal flow have been robust in recent years, “and there remains substantial potential for the market to grow in the long term, with just under half of all investors below their target real estate allocation.”

Yet he notes that high asset pricing and a competitive market are causing concerns among the investor community that performance this year may not match the returns they have seen in recent years. “We are seeing a mixed response to these concerns: some investors are reducing their outlay to real estate in the short term, but others continue to see it as attractive relative to other asset classes, and will be increasing the capital they invest this year as a result,” he says. “In the longer term, institutional investors certainly remain committed to real estate, and with many planning to expand their allocations the asset class has the potential to see further growth.”

LONDON—Concerns over performance are leading institutional investors in private real estate to adopt a wait-and-see approach, although their view of the asset class's performance over the past 12 months has been generally positive, says Preqin. What's giving them pause is the prospect of maintaining the rate of return seen in recent years through 2017, Accordingly, Preqin says some are opting to limit their exposure to real estate over the short term.

A Preqin survey of over 150 institutional investors finds that more than one-third of them believe that commercial real estate will perform worse in the coming 12 months than it did in 2016, while just 9% believe that returns will improve. As a result, a quarter of investors plan to reduce their exposure this year, a percentage equal to those that plan to increase their commitments. In the long term, though, the survey finds that most investors still intend to maintain or expand their real estate portfolios.

Half of all investors surveyed view private real estate in a positive light, while just 7% have a negative perception of the industry, down from 12% at the end of 2015, says Preqin. Forty-two percent of real estate investors say the asset class has exceeded their performance expectations over the past three years, the highest proportion of any asset class.

That being said, investors are concerned with valuations and performance in the year ahead. These issues were cited by 68% and 37% of respondents, respectively. In addition, 37% of investors expect their portfolios' performance to be lower in '17, compared to 9% which expect them to perform better. Given these expectations, 24% expect to invest less capital over the next 12 months compared to the year before, on par with the 25% that expect to increase their commitments.

This year, investors are more likely to focus on strategies that offer regular income opportunities. · The proportion looking to target core and core-plus strategies this year rose to 55% and 28%, respectively. More investors are targeting core assets than any other strategy, a reversal from 12 months ago.

At the same time, the proportion targeting debt strategies more than doubled, from 10% in December '15 to 21% a year later, Preqin says. Overall, investors remain committed to real estate in the longer term, with 36% intending to increase their allocations over time, compared to just 10% that aim to reduce them.

“Institutional investors have continued to see strong returns from their real estate portfolios, and remain committed to the asset class as a result,” says Andrew Moylan, head of real estate products at Preqin. He notes that fundraising and deal flow have been robust in recent years, “and there remains substantial potential for the market to grow in the long term, with just under half of all investors below their target real estate allocation.”

Yet he notes that high asset pricing and a competitive market are causing concerns among the investor community that performance this year may not match the returns they have seen in recent years. “We are seeing a mixed response to these concerns: some investors are reducing their outlay to real estate in the short term, but others continue to see it as attractive relative to other asset classes, and will be increasing the capital they invest this year as a result,” he says. “In the longer term, institutional investors certainly remain committed to real estate, and with many planning to expand their allocations the asset class has the potential to see further growth.”