Property fund investment in Europe 2007

Datamonitor's Property Fund Investment in Europe 2007 report presents views on the market for property investment based on a survey of 100 leading asset managers across Europe. The report, which covers mass market, high net worth and institutional customer groups, forms part of a series looking at the market for alternative investments in Europe.



Report Highlights
When asset managers from the five largest European markets were asked which geographic areas are of most interest to the investors in their home country, most selected Europe as the area that is most popular. They also believed that the majority of investors were looking to invest in mixed use funds rather than in a single property type. When asked which sector the investors in their country preferred to invest in, 53.9% said that mixed use funds was the most popular strategy. The main appeal of a mixed use portfolio is the extra level of diversification it offers investors, as the different sectors of property are not necessarily closely linked in terms of performance. There is a general trend towards favoring the dismantling of regulatory and tax barriers that exist in respect of onshore property funds, although far fewer asset managers believe that a corresponding increase in the regulations governing offshore funds would improve the onshore market.


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Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Market context 2
Customer focus 2
3
3
Catalyst 1 3
Summary 1 3
Methodology 1 3
Executive Summary 2 3
Market context 2 3
Customer focus 2 3
Market Context 10 3
The European property fund investment landscape is diverse as tastes vary between markets and client groups 10 3
Growth in the European property fund market has increased steadily in recent years 10 3
A fee structure encompassing both management and performance is most suitable for property investment funds 11 3
Europe is the key property fund investment geography and mixed use funds are most favored by European investors 17 3
Regulation and tax regimes are driving the offshore property funds market's challenge to the onshore market 20 3
Outside of southern Europe, local players dominate the competitive landscape 28 3
Lack of interest will be the greatest barrier to higher take-up of property investments while demand is expected to increase 31 3
Data tables 33 3
Customer Focus 45 3
Property investment is most popular among institutional investors compared to other client segments 45 3
The advisory channel remains the primary distribution channel for property investments across Europe 48 3
Institutional clients will become the most important client segment in the property investment market 52 3
Data tables 59 3
APPENDIX 65 3
Definitions 65 3
Methodology 65 3
Further reading 66 3
Ask the analyst 66 3
Datamonitor consulting 66 3
Disclaimer 66 3
Table of figures 4
Figure 1: Real estate funds have seen steady growth since December 2004 10 4
Figure 2: A combined fee was judged by European asset managers to be the most appropriate for REITs 12 4
Figure 3: Italian asset managers had the most wide-ranging views on REIT fee structures 12 4
Figure 4: Almost two thirds of European asset managers felt that the combined fee option was best for open-ended property funds 13 4
Figure 5: German and Italian asset managers were less likely to feel that the combined fee structure was most appropriate for open-ended property funds 13 4
Figure 6: Over half of asset managers surveyed believed that the combined fee structure was best suited to closed-ended property funds 14 4
Figure 7: There was significant variation between different countries over the degree to which the combined fee structure was most appropriate for closed-ended property funds 15 4
Figure 8: European asset managers are confident that performance fees will become more widespread 16 4
Figure 9: The preference for investment in Europe among property fund investors is set to increase over the next two years 18 4
Figure 10: Investing in a mixture of commercial, retail and residential property was the most popular strategy among European investors 19 4
Figure 11: Both institutional and high net worth investors were fairly evenly split between defensive, opportunistic and mixed reasons for investing in property 20 4
Figure 12: Regulation is the most significant barrier to the development of the onshore property fund market 21 4
Figure 13: The majority of asset managers in each of the major European markets feel that onshore regulatory barriers hinder the development of onshore property investment 22 4
Figure 14: European asset managers generally feel that the regulators in their countries do not adequately support real estate investment development 23 4
Figure 15: Giving tax advantages to onshore property funds would do most to encourage the onshore property fund market 24 4
Figure 16: There is limited belief that onshore property investment will come to rival the development of the offshore market 25 5
Figure 17: The UK was marginally believed to be the most popular jurisdiction for the launch of new property funds 26 5
Figure 18: The UK property funds market will see a dramatic shift towards funds launched offshore in the next two years 27 5
Figure 19: European asset managers have mixed feelings about the potential of REITs to compete with corporate bond funds 28 5
Figure 20: Insufficient interest among potential clients and insufficient promotion of products are the biggest barriers to greater take-up of property investments among institutional clients 32 5
Figure 21: Asset managers expect the biggest increase in demand to come from wealthy clients seeking REITs, however the main customer group will continue to be institutional clients seeking property funds 45 5
Figure 22: There is no dominant property investment vehicle in Europe across all client groups 48 5
Figure 23: Mass market investors are most likely to access property investment via an independent financial advisor 50 5
Figure 24: The independent advice channel is the most popular in Europe for distributing property investments to high net worth clients 51 5
Figure 25: The direct sales channel is by far the most popular among European asset managers in terms of institutional investors 52 5
Figure 26: Over the next three years the institutional client base will become more important in the property funds market 53 5
Figure 27: Asset managers are generally positive about the year on year growth expected for property funds in the institutional market 54 5
Figure 28: A lack of interest among high net worth clients will stand in the way of property fund development in this client segment 55 5
Figure 29: Asset managers were cautiously optimistic about the future year on year growth in demand for property investment among high net worth clients 56 5
Figure 30: Low interest in property investment among mass market clients will do the most to hamper growth in take-up in the near future 57 5
Figure 31: A low year on year increase in demand for mass market property investment is most likely to occur 58 6
Table of tables 7
Table 1: Breakdown of Non-UCITS assets by category (excl. Ireland) 33 7
Table 2: Answers to the question: What is the most appropriate fee structure for REITs? 33 7
Table 3: Answers to the question: What is the most appropriate fee structure for an open-ended property fund? 34 7
Table 4: Answers to the question: What is the most appropriate fee structure for a closed-ended property fund? 34 7
Table 5: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that fees linked to the performance of property investments will become more common? 35 7
Table 6: All answers to the question: Thinking of property funds, which geographic sectors are most popular with investors in your country? 35 7
Table 7: All answers to the question: Thinking of property funds, which sector is currently most popular with investors in your country? 36 7
Table 8: All answers to the question: Do your institutional/high net worth clients get into the property investment market mainly for opportunistic or defensive reasons? 36 7
Table 9: All answers to the question: What is the most important barrier to the development of onshore property funds? 36 7
Table 10: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that onshore regulatory barriers hinder the development of property investments onshore? 37 7
Table 11: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that the regulators in my country haven't done enough to support the development of real estate investment trusts? 37 7
Table 12: All answers to the question: What will most encourage the development of the onshore property fund market? 38 7
Table 13: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that the onshore market will never develop to the extent that the offshore market is developed? 38 7
Table 14: All answers to the question: What is the most popular jurisdiction for the launch of property funds? 39 7
Table 15: All answers to the question: Where have/will most property funds in the UK be launched from in the last two years and in the next two years? 39 8
Table 16: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that real estate investment trusts have the potential to rival corporate bond funds? 40 8
Table 17: Three asset managers were considered to be the most prominent in the French property funds market 40 8
Table 18: Allianz Dresdner and Deutsche Bank are the key players in the German property funds market 41 8
Table 19: Only 11 asset managers were mentioned as players in the Italian property funds market 41 8
Table 20: Allianz Dresdner leads the way amongst Spanish asset managers in its development of property funds 42 8
Table 21: British asset managers named a wide range of competitors as being among the top property fund builders in the UK 43 8
Table 22: All answers to the question: Thinking of institutional investors, what do you think will be the major barriers to wider take-up of alternative investments in the next three years? 44 8
Table 23: All answers to the question: Which is your biggest customer group for the following products? 59 8
Table 24: All answers to the question: In three years, which will be your biggest customer group for the following products? 59 8
Table 25: All answers to the question: For the following investments, from which customer base will the most increase in demand come from in three years' time? 59 8
Table 26: Answers to the question: Which is the largest client segment for the following types of property investments today? 60 8
Table 27: All answers to the question: What do you think is the best way for the following alternative investments to be distributed to mass market investors? 60 8
Table 28: All answers to the question: What do you think is the best way for the following alternative investments to be distributed to high net worth investors? 61 8
Table 29: All answers to the question: What do you think is the best way for the following alternative investments to be distributed to institutional investors? 61 8
Table 30: All answers to the question: In three years, which will be your biggest customer group for property funds? 62 9
Table 31: All answers to the question: Thinking of the next three years, how do you think demand for alternative investments will change among institutional investors? 62 9
Table 32: All answers to the question: Thinking of high net worth investors, what do you think will be the major barriers to wider take-up of alternative investments in the next three years? 63 9
Table 33: All answers to the question: Thinking of the next three years, how do you think demand for alternative investments will change among high net worth investors? 63 9
Table 34: All answers to the question: Thinking of mass market investors, what do you think will be the major barriers to wider take-up of alternative investments in the next three years? 64 9
Table 35: All answers to the question: Thinking of the next three years, how do you think demand for alternative investments will change among mass market investors? 64 9
Market Context 10
The European property fund investment landscape is diverse as tastes vary between markets and client groups 10
Growth in the European property fund market has increased steadily in recent years 10
Although the German property fund market has suffered, asset managers are overwhelmingly confident of a recovery 10
A fee structure encompassing both management and performance is most suitable for property investment funds 11
Over 60% of European asset managers believe that REITs were most suited to a combined fee structure 11
The combination fee is the most popular fee structure for open-ended property funds in Europe 12
The combined fee is believed to be the most appropriate structure for closed-ended property funds among European asset managers 14
There are clear country-specific trends in preferences for fee structures in property funds 15
A performance based fee structure is expected to become more common in property investment 16
Europe is the key property fund investment geography and mixed use funds are most favored by European investors 17
Europe is the most popular geographic area for investment and will remain important over the next two years 17
The option of investing in mixed use funds is most appealing to investors 18
Institutional client investment in property funds is more defensive than HNW investment in the asset class 19
Regulation and tax regimes are driving the offshore property funds market's challenge to the onshore market 20
Regulation is the key barrier to onshore property fund development 20
In each of the major European markets, the majority of asset managers feel that onshore regulatory barriers hinder onshore property fund development 21
The majority of European asset managers believe their home regulators could be more helpful in assisting the development of real estate investment trusts 22
Dismantling tax and regulatory barriers is the key to encouraging the onshore property fund market in Europe 23
European asset managers do not believe that the onshore property investment market will offer the same range and complexity currently available offshore 24
The UK is currently the most popular jurisdiction for property fund launches 25
There will be a strong challenge to the dominance of onshore property funds in the UK market 26
European asset managers remain split on the potential of REITs to rival corporate bond funds 27
Outside of southern Europe, local players dominate the competitive landscape 28
French asset managers believe that ADi, AXA and Crédit Agricole are the top property fund developers in France 29
Deutsche Bank stands out in the German property fund market 29
The Italian property fund market has a limited range of players with very little seperating them 29
Allianz is considered to be the leading developer of property funds in the Spanish asset management market 30
There are a large number of significant competitors in the property fund market in the UK 30
Lack of interest will be the greatest barrier to higher take-up of property investments while demand is expected to increase 31
A lack of interest and poor promotion of funds among institutional clients will be the biggest barriers to wider take-up of property investments among this group 31
Data tables 33
Customer Focus 45
Property investment is most popular among institutional investors compared to other client segments 45
Institutional investors will still be the main force in the European property investment market in three years' time 46
Compared to other forms of alternative investment, property funds will see significantly increased demand from the retail client segment 46
Each customer base favors a different kind of property fund 47
The advisory channel remains the primary distribution channel for property investments across Europe 48
Property investments are most likely to be distributed to mass market investors through an independent financial advisor 49
Over one third of asset managers believe high net worth clients investing in property are best served by independent financial advisors 50
Distributing property funds directly to insitutional clients is seen as the most effective strategy for this client segment 51
Institutional clients will become the most important client segment in the property investment market 52
Asset managers believe that demand for property investments among institutional clients will increase by 5-10% per annum over the next three years 53
Low high net worth client interest in property investment is most likely to hold the market back 54
Demand for property investment is most likely to increase by between 0 and 5% per annum among high net worth clients 55
A lack of interest in investing in or promoting property investments is likely to prevent these products from becoming more popular among mass market clients 56
There will be a gentle increase in demand for property investments among mass market clients 57
Data tables 59
APPENDIX 65
Definitions 65
Property Fund 65
HNW 65
Mass affluent 65
Real estate investment trust (REIT) 65
Methodology 65
Further reading 66
Ask the analyst 66
Datamonitor consulting 66
Disclaimer 66

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Table 1: Breakdown of Non-UCITS assets by category (excl. Ireland) 33
Table 2: Answers to the question: What is the most appropriate fee structure for REITs? 33
Table 3: Answers to the question: What is the most appropriate fee structure for an open-ended property fund? 34
Table 4: Answers to the question: What is the most appropriate fee structure for a closed-ended property fund? 34
Table 5: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that fees linked to the performance of property investments will become more common? 35
Table 6: All answers to the question: Thinking of property funds, which geographic sectors are most popular with investors in your country? 35
Table 7: All answers to the question: Thinking of property funds, which sector is currently most popular with investors in your country? 36
Table 8: All answers to the question: Do your institutional/high net worth clients get into the property investment market mainly for opportunistic or defensive reasons? 36
Table 9: All answers to the question: What is the most important barrier to the development of onshore property funds? 36
Table 10: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that onshore regulatory barriers hinder the development of property investments onshore? 37
Table 11: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that the regulators in my country haven't done enough to support the development of real estate investment trusts? 37
Table 12: All answers to the question: What will most encourage the development of the onshore property fund market? 38
Table 13: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that the onshore market will never develop to the extent that the offshore market is developed? 38
Table 14: All answers to the question: What is the most popular jurisdiction for the launch of property funds? 39
Table 15: All answers to the question: Where have/will most property funds in the UK be launched from in the last two years and in the next two years? 39
Table 16: All answers to the question: In your understanding or experience of the property investment market, to what extent do you agree or disagree with the statement that real estate investment trusts have the potential to rival corporate bond funds? 40
Table 17: Three asset managers were considered to be the most prominent in the French property funds market 40
Table 18: Allianz Dresdner and Deutsche Bank are the key players in the German property funds market 41
Table 19: Only 11 asset managers were mentioned as players in the Italian property funds market 41
Table 20: Allianz Dresdner leads the way amongst Spanish asset managers in its development of property funds 42
Table 21: British asset managers named a wide range of competitors as being among the top property fund builders in the UK 43
Table 22: All answers to the question: Thinking of institutional investors, what do you think will be the major barriers to wider take-up of alternative investments in the next three years? 44
Table 23: All answers to the question: Which is your biggest customer group for the following products? 59
Table 24: All answers to the question: In three years, which will be your biggest customer group for the following products? 59
Table 25: All answers to the question: For the following investments, from which customer base will the most increase in demand come from in three years' time? 59
Table 26: Answers to the question: Which is the largest client segment for the following types of property investments today? 60
Table 27: All answers to the question: What do you think is the best way for the following alternative investments to be distributed to mass market investors? 60
Table 28: All answers to the question: What do you think is the best way for the following alternative investments to be distributed to high net worth investors? 61
Table 29: All answers to the question: What do you think is the best way for the following alternative investments to be distributed to institutional investors? 61
Table 30: All answers to the question: In three years, which will be your biggest customer group for property funds? 62
Table 31: All answers to the question: Thinking of the next three years, how do you think demand for alternative investments will change among institutional investors? 62
Table 32: All answers to the question: Thinking of high net worth investors, what do you think will be the major barriers to wider take-up of alternative investments in the next three years? 63
Table 33: All answers to the question: Thinking of the next three years, how do you think demand for alternative investments will change among high net worth investors? 63
Table 34: All answers to the question: Thinking of mass market investors, what do you think will be the major barriers to wider take-up of alternative investments in the next three years? 64
Table 35: All answers to the question: Thinking of the next three years, how do you think demand for alternative investments will change among mass market investors? 64


Figure 1: Real estate funds have seen steady growth since December 2004 10
Figure 2: A combined fee was judged by European asset managers to be the most appropriate for REITs 12
Figure 3: Italian asset managers had the most wide-ranging views on REIT fee structures 12
Figure 4: Almost two thirds of European asset managers felt that the combined fee option was best for open-ended property funds 13
Figure 5: German and Italian asset managers were less likely to feel that the combined fee structure was most appropriate for open-ended property funds 13
Figure 6: Over half of asset managers surveyed believed that the combined fee structure was best suited to closed-ended property funds 14
Figure 7: There was significant variation between different countries over the degree to which the combined fee structure was most appropriate for closed-ended property funds 15
Figure 8: European asset managers are confident that performance fees will become more widespread 16
Figure 9: The preference for investment in Europe among property fund investors is set to increase over the next two years 18
Figure 10: Investing in a mixture of commercial, retail and residential property was the most popular strategy among European investors 19
Figure 11: Both institutional and high net worth investors were fairly evenly split between defensive, opportunistic and mixed reasons for investing in property 20
Figure 12: Regulation is the most significant barrier to the development of the onshore property fund market 21
Figure 13: The majority of asset managers in each of the major European markets feel that onshore regulatory barriers hinder the development of onshore property investment 22
Figure 14: European asset managers generally feel that the regulators in their countries do not adequately support real estate investment development 23
Figure 15: Giving tax advantages to onshore property funds would do most to encourage the onshore property fund market 24
Figure 16: There is limited belief that onshore property investment will come to rival the development of the offshore market 25
Figure 17: The UK was marginally believed to be the most popular jurisdiction for the launch of new property funds 26
Figure 18: The UK property funds market will see a dramatic shift towards funds launched offshore in the next two years 27
Figure 19: European asset managers have mixed feelings about the potential of REITs to compete with corporate bond funds 28
Figure 20: Insufficient interest among potential clients and insufficient promotion of products are the biggest barriers to greater take-up of property investments among institutional clients 32
Figure 21: Asset managers expect the biggest increase in demand to come from wealthy clients seeking REITs, however the main customer group will continue to be institutional clients seeking property funds 45
Figure 22: There is no dominant property investment vehicle in Europe across all client groups 48
Figure 23: Mass market investors are most likely to access property investment via an independent financial advisor 50
Figure 24: The independent advice channel is the most popular in Europe for distributing property investments to high net worth clients 51
Figure 25: The direct sales channel is by far the most popular among European asset managers in terms of institutional investors 52
Figure 26: Over the next three years the institutional client base will become more important in the property funds market 53
Figure 27: Asset managers are generally positive about the year on year growth expected for property funds in the institutional market 54
Figure 28: A lack of interest among high net worth clients will stand in the way of property fund development in this client segment 55
Figure 29: Asset managers were cautiously optimistic about the future year on year growth in demand for property investment among high net worth clients 56
Figure 30: Low interest in property investment among mass market clients will do the most to hamper growth in take-up in the near future 57
Figure 31: A low year on year increase in demand for mass market property investment is most likely to occur 58

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