The Institutional Perspective – Oct. 27, 2025
Institutional investors that have been under-allocated to real estate now see greater clarity and opportunity in the market
This past week, Connect CRE reported the findings of the 13th annual Institutional Real Estate Allocations Monitor, published by Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate and based on a survey of 166 institutional investors across the Americas, EMEA and APAC. The focus of that story was the topline figure for target allocations, which diminished by a global average of 10 basis points year over year. But there’s much more to unpack in the study.
Although the 10-bp drop was the first annual decline since Hodes Weill and Cornell began publishing the report in 2013, it’s actually a return to the average level of underinvestment over the past 10 years. The gap between targeted and actual allocations increased by a greater margin Y-O-Y than the tapering of targeted allocations, dropping 50 bp to 9.8%.
That 50-bp gap reflects “a combination of factors,” according to Hodes Weill and Cornell. These include a slowdown in capital deployment as investors adopted a “wait-and-see” approach, strong gains in other asset allocations, relatively weak real estate performance in recent years and intentional divestments driven by underperformance.
The report defines “relatively weak.” On a trailing 10-year basis, returns have averaged 7.9%, or 50 bps below investors’ target return of 8.4%. Underperformance is more pronounced on a three- and five-year trailing average, at 3.2% and 6.5%, respectively.
The modest return posted in 2024 (1.4%) and the negative return in 2023 (-1.4%) strongly influenced the near-term trailing averages. The gap between achievement and expectations is widest in the Americas: an average 2024 return of 0.3%, compared to a target of 9.1%.
That said, institutions’ current level of under-allocation indicates “substantial runway for renewed investment activity,” with survey respondents positioned to accelerate their pace of deployment over the next several years. “Investors responding to the survey are optimistic about the near-term opportunities in the market,” according to the report. “One insurance company, based in the Americas, commented that the ‘current environment presents a good investment vintage with likelihood of growth and appreciation.’ Another insurance company based in the Americas commented that the market presents an ‘attractive entry point, given clarity on underlying fundamentals for each real estate sector.’”
Investors’ conviction in real estate is on the rise this year. Asked to rank on a scale of 1 to 10 their view of the investment opportunity in commercial real estate from a risk/return perspective, survey respondents produced an average reading of 6.4, matching the level seen in 2023 and marking a 10-bp improvement over 2024. For Americas institutions in particular, the increase may be attributed to more clarity on the direction of interest rates, as the Federal Reserve has begun to reverse its restrictive policymaking, and the moderation of the broader uncertainty around tariffs’ effect on the global economy.
The report noted that in recent months, macroeconomic conditions have shown signs of stabilization. “The headwinds of inflation, elevated interest rates and muted transaction volumes in 2024 have begun to ease, and investors are entering the second half of 2025 with renewed clarity on the direction of the economy in a post-Liberation Day environment,” the report states. “As the uncertainty that previously weighed on capital flows recedes, investors that had remained largely on the sidelines over the past 24 to 36 months are beginning to rebuild their real estate investment pipelines in anticipation of deploying capital in late 2025 and into 2026.”
Even as ongoing concerns around geopolitical risks, inflation and interest rates continue to weigh on sentiment, the report notes that “investors are finding comfort in real estate as a ballast to their broader portfolios against the backdrop of potential market volatility.”