Institutional real estate allocations are expected to decrease slightly in 2025, according to the 12th annual Institutional Real Estate Allocations Monitor by Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate. Allocations remained steady at 10.8% in 2024, with institutions planning a 10 basis point decrease in favor of private credit and infrastructure investments.
The report highlights a shift in allocations after years of being under-allocated to real estate. In 2023, 39% of institutions reported being over-allocated, while in 2024, around 50% report under-allocation, averaging a 60 basis point shortfall.
Real estate portfolios delivered an average return of -1.4% in 2023, after a decade of strong performance. While near-term returns may remain negative as portfolios are marked to market, institutions are optimistic that rate cuts and favorable economic conditions will drive positive future performance.
The report also indicates that institutions’ “Conviction Index” has slightly decreased to 6.3, signaling caution due to inflation, interest rates, and economic uncertainty. However, as transaction volumes rebound, institutions are more confident about entering new investments.
Regionally, institutions in the Americas have the highest target allocation to real estate (11%), followed by APAC (10.9%) and EMEA (10.4%). In 2025, institutions in the Americas and EMEA plan to reduce their allocations by 10 basis points, while APAC-based institutions plan to increase their target allocations by 20 basis points.
Appetite for cross-border investment has decreased across regions, with institutions in APAC showing the most interest in investing abroad. However, North America remains a strong focus for global capital, with 87% of institutions planning to allocate capital there in the next 12 months.
Institutions are also shifting investment strategies, with increasing interest in value-add and opportunistic strategies, particularly in the Americas and APAC. Additionally, more institutions are turning to debt strategies, with 63% of institutions allocating capital to credit opportunities.
Finally, the report notes that nearly two-thirds of institutions outsource their real estate portfolios, with growing interest in managers with proven track records. ESG policies continue to gain importance, with European and Australian institutions leading the way, while U.S. institutions are catching up, particularly in social and diversity directives.
The survey included 186 institutions from 25 countries, representing over US$13.6 trillion in assets under management.
