German institutional investors placing greater importance on ESG in real estate investments

German institutional investors placing greater importance on ESG in real estate investments

ESG criteria continue to become increasingly important for German institutional investors, according to the findings of the “Empira Institutional Trends 2022” survey.

Around 90 percent of the survey’s respondents attach high or very high importance to sustainable investments in their investments. In the previous year’s survey, this figure was around 70 percent.

Article 8 funds are also particularly popular. Around 53 percent of respondents “very likely” want to invest in them by the end of 2023. This is a significant jump compared to 2021, when just under 30 percent of institutional investors preferred Article 8 funds. As in the previous year’s survey, investments in Article 6 funds are “very likely” or “somewhat likely” for only one in four respondents.

More than 100 German institutional investors and family offices were surveyed for Empira’s latest survey “Empira Institutional Trends 2022” which was conducted by the research firm bulwiengesa in July 2022.

“The impact of ESG factors on real estate investments is now enormous. In addition, measures are increasingly being implemented in portfolios,” explains Lahcen Knapp, Chairman of the Empira Group. Around 88 percent of investors want to take at least one measure to meet ESG requirements by the end of 2023. 62 per cent of the survey participants want to measure their carbon footprint, 48 percent want to use internal benchmark and scoring systems and 45 percent want to monitor water consumption and waste volume.

While approximately 13 percent of the investors surveyed wanted to significantly increase their real estate investments by 50 percent last year and approximately 23 percent of the investors by 25 to 50 percent, this has changed significantly in the latest survey. Only three percent are still planning to expand their investment volumes by 50 percent and approximately seven percent by 25 to 50 percent. More than 40 percent intend to maintain the planned investment volumes and as many as 37 percent said they did not know yet. Approximately eleven percent want to reduce the volumes significantly by 25 to 50 percent.

For investments in the credit fund sector, the weights are shifting. Around 17 percent are planning higher investments of ten to 25 percent. This is a significant increase compared to the previous year (four percent). The number of respondents that want to invest 50 percent more is declining at two percent (previous year: seven percent). The number of respondents planning to expand investment volumes by 25 to 50 percent has also declined to five percent (previous year: eleven percent). 35 percent of respondents intend to maintain the planned investment volumes and as many as 38 percent said they did not know yet. A reduction in investment volumes is planned only to a very small extent for debt funds.

Investors open to early entry into project development

Interest in investments in project developments for investors‘ own portfolios is quite stable. The calculated project volume rose from around 35 billion to 42 billion euros. The decisive factor for this development is the continued high excess demand. Residential real estate in German A-cities continues to be sought after as a stable and long-term investment by security-oriented institutional investors. At 59 percent, significantly more than half of the survey participants are still interested in this investment strategy and are open to an early entry into project development. Compared to the previous year’s survey, however, this is a decrease of seven percentage points.

More than half of the respondents intend to make real estate investments in Europe (outside Germany) by the end of 2023; at least a quarter definitely have this on their agenda. Compared to the previous year’s survey, when only 37 percent had answered “definitely” or “rather yes”, this is an increase of 15 percentage points.

Positive trend for US investments

A positive trend can be seen in the plans for real estate investments in the USA. Fourteen percent of the respondents “definitely” and 14 percent “rather yes” are planning to do so. Compared to the previous year, this is an increase of five percentage points. Compared to the previous year’s survey, however, the proportion of those who “definitely not” envisage investing in real estate in the USA has also increased significantly (+14 percentage points). When asked about the influence of the level of inflation on the willingness to invest, the answers tend to be in the direction of unchanged to decreasing. For a small group of twelve percent, the level of inflation even increases the willingness to invest. For a much larger group of 43 percent, however, the opposite is true. And an almost equally large group (41 percent) sees the willingness to invest as unchanged.