After holding allocations steady from 2022 through 2024, institutions decreased target allocations by 10 basis points in 2025, marking the first decline since the survey’s inception in 2013

Institutions report being under allocated by 90 basis points, up from 60 basis points in 2024, creating potential for acceleration in capital flows

Investor conviction is improving, with institutions seeing attractive opportunities and a favorable entry point for deploying capital over the next several years

For the first time since the survey’s inception in 2013, institutional target allocations to real estate have declined, dropping 10 basis points to 10.7% in 2025, finds the 13^th annual Institutional Real Estate Allocations Monitor, published by Hodes Weill & Associates and Cornell University’s Baker Program in Real Estate. Despite this recent reduction, institutions expect to increase target allocations by 10 basis points in 2026, led by EMEA-based institutions that are reporting the highest conviction in the asset class this year.

To download the full report, which was published today, please visit: www.hodesweill.com/research.

The decline in target allocations follows a three-year plateau at 10.8% from 2022 through 2024, ending a nearly decade-long growth trend that saw target allocations increase more than 20% between 2013 and 2022. The reduction in target allocations, which was predicted in last year’s report, is the result of market uncertainty combined with competition from other asset allocations, in particular infrastructure and private credit. However, institutions remain significantly under allocated to real estate, with the gap between target and actual allocations widening to 90 basis points in 2025. This margin represents a return to the average level of under investment over the past 10 years and implies a substantial runway for renewed investment activity, with institutions positioned to accelerate their pace of deployment over the next several years.

On a same-store basis, institutions in APAC reported the highest decline in target allocations year over year at 100 basis points – led by large institutions that took a decided step back from allocations to real estate in 2025. This compares to a moderate decline from institutions in the Americas at 40 basis points and no change from EMEA-based institutions. When looking to 2026, institutions in the Americas and APAC intend to hold their target allocations flat, with the intended increase in 2026 being driven by EMEA-based institutions that report an expected increase of 10 basis points. This correlates with EMEA-based institutions reporting the highest conviction in the real estate asset class and the highest portfolio returns in 2024.

Institutional real estate portfolios delivered a modest rebound with returns of 1.4% in 2024, on average, recovering from the -1.4% return reported in 2023. Real estate portfolio returns have underperformed target returns on a 3-, 5-, and 10-year trailing basis, largely influenced by the returns reported in 2023 and 2024. However, institutions believe portfolio valuations have reached an inflection point and anticipate more favorable performance over the next few years.

The “Conviction Index” in this year’s survey rose to 6.4, with sentiment trending positive among institutions in the Americas and EMEA, while APAC remained steady year over year. Investors note that concerns around geopolitical risks, inflation and interest rates have begun to ease, citing greater clarity on the direction of the economy and stabilizing market fundamentals as drivers of renewed confidence. The next several years are expected to be a “good entry point” for capital deployment, with investors focusing on the long-term view of real estate as a ballast to their broader portfolios against the backdrop of potential market volatility.

Douglas Weill, Managing Partner at Hodes Weill & Associates, said, “While we’re seeing the first decline in target allocations since our survey began, this is consistent with the expected tactical pause we reported last year rather than a strategic shift away from real estate. Importantly, institutions remain meaningfully under allocated to the asset class, and the 90 basis point margin reflects the widest gap we’ve seen since 2021. As market conditions stabilize, the pent-up demand for deployment is expected to support healthier transaction volumes and a more active fundraising environment in 2026. Institutions are taking a measured approach, but their long-term conviction in the asset class remains strong, particularly as valuations appear to have bottomed and transaction activity accelerates.”

Institutional investors are taking a more balanced approach to risk allocation in 2025, with a noticeable shift toward lower-risk strategies amid signs of market stabilization. While value-add remains the most favored strategy, with 77% of institutions planning to allocate capital, interest in core-plus and core strategies has increased, reflecting growing confidence that valuations have bottomed. Core-plus allocations rose to 68%, up from 63% in 2024, and core allocations climbed to 65%, up from 62%. Meanwhile, appetite for opportunistic strategies declined from 73% to 67%, underscoring a more balanced approach to risk. Regional differences remain pronounced: investors in the Americas continue to favor higher-returning strategies, with 82% and 77% allocating to value-add and opportunistic, respectively. In contrast, EMEA investors remain the most risk-averse, with 82% allocating to core.

North America continues to be the dominant destination for institutional real estate capital flows – supported by the market’s scale and liquidity – even as some investors temporarily moderate new commitments to the U.S. due to continued uncertainty regarding tariffs and geopolitical risk. While APAC- and EMEA-based institutions showed a moderate decline in cross-border capital flows, 72% of institutions in the Americas are planning to make cross-border investments, up from 65% in 2024.

Closed-end funds continue to be the primary investment vehicle for institutional portfolios, with 81% of institutions planning allocations to such structures. The continued appeal of closed-end funds highlights investors’ willingness to commit to more illiquid vehicles in exchange for access to niche strategies and specialized managers. However, appetite for structures providing greater investor discretion over capital deployment, asset selection, and leverage decisions increased, with the percentage of institutions planning to make direct investments and invest in joint ventures and separate accounts reaching five-year highs at 42%, 41%, and 39%, respectively.

Interest in real estate credit moderated with 51% of institutions reporting plans to allocate to credit strategies in 2025, down from 63% in 2024, reflecting tightening spreads and increased competition from broader private credit markets. REITs and other real estate related public equities continue to comprise an important component of institutional portfolios with over one third of institutions actively allocating. Consistent with findings in recent years, liquidity and access to core strategies remain key drivers for institutions investing in REITs.

While the share of institutions managing their real estate portfolios exclusively in-house is rising, the vast majority of institutions (90%) are outsourcing all or a portion of their real estate portfolios to third-party managers, with nearly two-thirds relying on third parties for their entire real estate portfolio. Institutions continue to prioritize existing manager relationships, though allocations to new relationships is gradually increasing, with 26% of institutions anticipating to allocate to new relationships in 2025, up from 22% from 2024. When combined with widening under allocations, this may indicate a more constructive fundraising environment in 2026 as investors look to refresh manager lineups and replace underperforming fund managers. This year’s report noted that performance issues are driving challenges for perennial fundraisers, and the industry is seeing “falling stars” being replaced by new and emerging managers.

Of note, ESG adoption experienced its first decline since the survey began tracking the metric in 2015, dropping to 57% of institutions with formal policies. This decrease was led by U.S.-based institutions, where only 32% report policies in place. EMEA, Australian and Canadian institutions continue to prioritize ESG implementation, and EMEA leads the pack with 78% of institutions in the region reporting that ESG factors influence their decision-making, which compares to 13% in the U.S, down from 23% in 2024. The sharp pullback among U.S. institutions indicates a rebalancing of priorities amid political and regulatory uncertainty, while leadership from European institutions is driven by domestic legislative momentum and active investor coalitions.

166 institutions from 26 countries participated in this year’s survey, representing aggregate AUM exceeding US$14.7 trillion and portfolio investments in real estate totaling approximately US$1.4 trillion.

About Hodes Weill

Hodes Weill & Associates is a leading, global capital advisory firm focused on real estate, infrastructure and other real assets. The firm has offices in New York, Hong Kong, London, Amsterdam and Tokyo. Founded in 2009, Hodes Weill provides institutional capital raising for funds, transactions, co-investments and separate accounts; M&A, strategic and restructuring advisory services; and fairness and valuation analyses. Clients include investment and fund managers, institutional investors, lenders, and public and private owners of assets and portfolio companies. For more information, please contact or visit www.hodesweill.com

*All U.S. regulated capital market and securities advisory services are provided by Hodes Weill Securities, LLC, a registered broker-dealer with the SEC, and a member of FINRA and SIPC, and internationally, by non-U.S. Hodes Weill affiliates.

About Cornell University’s Baker Program in Real Estate

Cornell’s Baker Program in Real Estate housed in the Paul Rubacha Department of Real Estate offers a comprehensive, professional, graduate-level curriculum that educates the next generation of real estate industry leaders, taught by the largest on-campus real estate field faculty in the country.

Cornell is also home to the Cornell Real Estate Council, an extensive network of industry leaders, the Cornell Real Estate Review, conferences, research and industry news, and more.

For more information, please visit https://realestate.cornell.edu/programs/baker/

Disclaimer

For informational purposes only. This is not a solicitation to buy or sell any securities or securities products. Please refer to the full report for important disclaimers. The full report can be found at www.hodesweill.com/research

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