REAL ESTATE - Pension funds will hike their allocations to real estate over the next five years as they ditch the drive for returns in favour of “an approach based on managing assets and liabilities”, according to George Jautze, CEO of ING Real Estate. (This article first appeared on

Jautze told analysts at an investment relations symposium in Amsterdam last week that property allocations will rise as pension funds pursue “income-returning investments for ageing populations”.

As a result, he said that in 2006 “impressive global real estate returns will slow, with incomes likely to become a more important driver for total return”.

Despite lower returns, continuing capital inflows, an increase in cross-border investments and demand for liquidity would continue to attract investors to property. Jautze quoted research from investment bank Morgan Stanley suggesting that institutional allocations will increase from a current level of 5-6% to 10-15% by 2012.

A 2005 ING Real Estate survey of more than 50 pension funds found that more than half planned to increase their allocation to property, with a further 30% considering real estate for the first time.

With a global investment universe of €7tn, most real estate investment is in the office sector (42%), with 32% in retail, 15% in residential, and 11% in industrial.

Despite a global shortage of assets and local shortages in many markets, Jautze was relatively bullish about shopping malls throughout Europe and residential real estate in Central Europe. Elsewhere in Europe, the incipient recovery will “broaden on the back of absorption beginning to improve”, though with wide variations by city and property type.

According to Jautze, Asia will see declining office vacancy rates that will sustain strong growth in office rents and, as a result, a moderate improvement in yields. Demand for Australian retail and industrial property will remain strong, with recovery in the office market set to continue. Jautze also forecast a rise in office occupancy in the US, with pressure easing on the multi-family sector.