LAGRANGE Fund Monitor H2 2024: Institutional Investors Regaining their Appetite for Special AIF – Surge in Demand for Real Estate Debt

EQS-Media / 25.02.2025 / 11:02 CET/CEST

• Residential real estate remains the most coveted asset class, serious interest also apparent for logistics real estate, data centres and light industrial
• Real estate debt swiftly gaining in significance
• Data centres an emergent favourite
• Risk acceptance: core-plus widening its lead over core, weaker demand for value-add
• Most coveted foreign markets are Benelux, France, the US and the UK
• Infrastructure investments focus mostly on photovoltaics and diversified funds
• Secondary market becoming an established alternative to the primary market

After temporarily weakening and subsequently stabilising, the inclination among German institutional investors to expand the real estate special AIF exposure in their portfolios has noticeably increased over the course of the second half of 2024. Among the various asset classes, the focus shifted predominantly to real estate debt, data centres and light industrial. In addition, secondary-market transactions are increasingly seen as a viable alternative to the primary market, while a growing number of investors are putting infrastructure investments on their agendas.

These are some of the findings of the ninth survey that was undertaken for the LAGRANGE Fund Monitor to cover the second half of 2024. The survey is compiled by LAGRANGE Financial Advisory GmbH and by INVESTMENTexpo, and is based on interviews with selected representatives of institutional investors from the worlds of insurance, banking, pension funds and superannuation schemes. A look at the proportion of real estate special AIF within the overall special AIF investment portfolio shows a modestly positive index score of 6.83 points (H1 2024: 6.25 points). In this context, a score of 1 would signal a drastic reduction while a score of 11 would imply a drastic increase in the real estate proportion among institutional fund investments. Once again, respondents were asked to rate their degree of interest in infrastructure investments within the segment of special AIF investments, using the same scale. The poll returned an index score of 7.10 points, matching the level of the previous survey period and suggesting that the respondents continue to be strongly interested in expanding their infrastructure investments via AIFs.

The risk acceptance in the context of real estate special AIF investments is still highest in the case of core-plus investments, and the lead over the second-highest category, which is core, has significantly widened. While core-plus investments accounted for well over 48% of the responses, core investments claimed around 32% (H1 2024: 33%). Value-add investments, which scored around 17% of the responses (H1 2024: 22%), were no longer as much in demand, the same being true for opportunistic investments, now down to just 3% (H1 2024: 5%).

Among the real estate sectors, investors were primarily interested in residential real estate, and the proportion of respondents saying so has increased lately, as it amounts to around 16% (H1 2024: 13%). The appetite for logistics, once again the runner-up, also followed a modest upward trend with around 14% of the responses (H1 2024: 12%). Worth noting is the rapid increase of interest in real estate debt investments, which topped all other real estate asset classes at 11%, and which thereby virtually doubled their share in the total number of responses. Claiming an equal number of responses with 10% each, the two sectors light industrial and data centres came in fourth. Most remarkable is the surging interest in the data centre segment that is probably explained by the increasing use of artificial intelligence and the growing demand for relevant solutions, which require enormous computing and storage capacities. Food-anchored retail real estate claimed 9% of the responses. By contrast, office real estate continued its downward trend and is now at just 5% of all responses (H1 2024: 6%).

As far as target regions for real estate special AIF investments go, Germany began to attract more interest again, since it was picked by 16% of the respondents (H1 2024: 13%). The BeNeLux region, for which there has always been strong demand, scored 14% (H1 2024: 13%). Second among the most popular markets outside Germany were France and the United States with 12% each, followed by the United Kingdom with 10% and Austria with 9% of the responses. The Nordics and Southern Europe were cited by 6% of the respondents each, whereas all other markets attracted much less interest.

Investments in infrastructure special AIF continue to focus primarily on renewable energies (solar, wind power) as well as on diversified infrastructure funds. Target regions for this type of investment include primarily Germany and other European countries with 38% of the responses, whereas far fewer respondents were interested in North America (19%) and fewer yet in Asia (4%).

The main motive for investing in real estate special AIF are specific opportunities in the real estate markets (55%), followed by the desire to enhance the risk diversification of the portfolio (35%) and, lagging far behind, the need for inflation protection (10%). By contrast, the perceived benefits of infrastructure special AIF are portfolio risk diversification above all (48%) and specific opportunities in the infrastructure markets (41%). Here, as elsewhere, the importance of inflation protection (7%) has drastically declined; drawing on the expertise of fund managers continues to play but a subordinate role at 3%.

Moving on to the biggest challenges in the context of special AIF investments, there is a major change to report insofar as the subject of financing was identified as challenging by more than half of the respondents (55%) this time around, having previously mattered to a much lower percentage. High property prices or low cap rates were quoted by 26% of the poll participants, making it the second-most pressing issue. By contrast, the risk of falling prices and rents (13%) and a low supply of assets on the market (6%) played a relatively minor role. The financing issue was also identified as the greatest challenge for investments in infrastructure funds, but the complexity of products was considered just as challenging (both being named by 25% of the respondents).

Asked about their inclination to buy units in real estate special AIF on the secondary market, respondents returned an index score of 7,39 points, this being a noticeably higher level than that of the previous half-year (H1 2024: 7.06 points). For the third time in a row, it also exceeded the index score for the inclination to buy on the primary market. The inclination to sell units on the secondary market has grown even faster, as the previous high-water-mark of 7.19 points, recorded at mid-year 2024, was clearly topped again by the latest score of 8.06 points. Here, a score of 1 would indicate an absolute lack of interest, whereas a score of 11 would signal very keen interest.

The survey suggests that sectors of choice for secondary-market acquisitions include specifically units in funds that invest in residential real estate (32%), logistics real estate (23%) and food-anchored retail real estate (22%). This contrasts with the inclination to sell via the secondary market, which is strongest in relation to office real estate funds (59%), followed at considerable distance by logistics real estate funds (14%), residential real estate investment funds and food-anchored retail real estate funds (11% each).

“All things considered, the responses concerning the primary market pretty accurately reflect the essence of our daily talks with investors. Moreover, the secondary market is quickly gaining in importance as an exit option for existing special AIF investments,” said Dr. Sven Helmer, Managing Director of Lagrange.

Monika Bednarz, Managing Director at Lagrange, commented: “The findings on the subject of financing are interesting: On the one hand, the restrictive financing policies of many banks pose a challenge for a lot of market actors, but on the other hand, the situation appears to have whetted their appetite to invest in real estate debt on their own. The present moment is a great time for doing so, since the property values are adjusted and the margins are higher. You need to select carefully, though, and scrutinise the way the debt is structured.”

Company Contact:
Lagrange Financial Advisory GmbH
Monika Bednarz
Managing Director
Phone: +49 69 50 50 60 4932
Email: monika.bednarz@lagrange-fin.com

Press Contact:
RUECKERCONSULT GmbH
Peter Dietze-Felberg
Phone: +49 30 2844 987 62
Email: dietze@rueckerconsult.de

About Lagrange Financial Advisory GmbH
Lagrange Financial Advisory GmbH (Chartered Surveyors) is an independent multi-asset consulting firm that advises institutional investors in regard to new and portfolio investments, concentrating on private markets (real estate, infrastructure, private equity and private debt) as well as on primary- and secondary-market transactions. The company’s team is made up of experts in the areas of investment funds, real estate, infrastructure and debt, and covers the global markets in the investment fund sector as well as the secondary market trading of equity interests. Its investors hail mainly from Germany or other German-speaking countries (the DACH region). Overall, the company placed 40 different funds in a combined volume of c. 3 billion euros in the real estate sector in more than 110 transactions over roughly the past 8 years or recommended investments in these funds to institutional investors before implementing the corresponding transactions.

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Language:

English

Company:

LAGRANGE Financial Advisory GmbH

Taunusanlage 9-10

60329 Frankfurt am Main

Germany

Internet:

www.lagrange-fin.com

EQS News ID:

2091133

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