Institutional target allocations to real estate hold steady at 10.7% in 2026 following the survey’s first decline in 2025, finds the 14th annual Institutional Real Estate Allocations Monitor, published by Hodes Weill, a Chatham Financial Company, and Cornell University’s Baker Program in Real Estate. Institutions expect to increase target allocations by 10 basis points to 10.8% in 2027, with 22% of institutions planning to raise targets over the next 12 months, the highest share since 2022.

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

After rising more than 20% between 2013 and 2022, target allocations have remained relatively flat since 2021. While targets hold steady this year, actual allocations decline to 9.5% from 9.8% in 2025, widening the gap between actual and target allocations to 120 basis points, compared with 90 basis points in 2025. This marks the third consecutive year the gap has widened and the largest shortfall since 2021.

Despite positive returns and limited distributions, real estate’s share of institutional portfolios declined as strong public equity performance drives growth in overall portfolios. Approximately 54% of institutions report being under-allocated, up from 40% in 2025, representing the highest reported under-allocation since 2021. Applied to an estimated US$147 trillion of global institutional AUM, the gap implies approximately US$1.8 trillion of potential incremental real estate investment, though actual deployment will depend on institutions’ conviction to invest.

For the first time, infrastructure ranks as the leading asset class competing with real estate for allocations, named by 60% of institutions, followed by private credit (54%), fixed income (48%) and private equity (44%).

Institutional real estate portfolios delivered an average return of 3.3% in 2025, up from 1.4% in 2024, and 78% of institutions reported a positive return. Despite the improvement, returns remain below the 8.1% average target return on a trailing basis, with three-, five- and 10-year returns averaging 1.1%, 6.0% and 7.1%, respectively. Since 2012, the first year of performance data captured by the survey, returns have averaged 8.1%, matching the current target. Returns in the Americas improved most, rising to 3.9% from 0.3% in 2024, while EMEA returns rose to 3.8% from 3.5%. APAC returns declined to 0.7%, although the region leads trailing three-year performance at 2.5%.

The “Conviction Index” in this year’s survey, which measures institutions’ view of real estate as an investment opportunity from a risk-return standpoint from one (least favorable) to ten (most favorable), declines to 6.0 from 6.4 in 2025, matching its five-year low. Geopolitical uncertainty, elevated financing costs and slower-than-expected recoveries in returns and liquidity temper sentiment. Interest rates remain the leading real estate investment risk cited by institutions at 92% – up from 79% in 2025 – while the share citing inflation rises from 33% to 43%, and the share citing geopolitical risks rises from 34% to 37%.

Douglas Weill, Senior Managing Director at Hodes Weill, said, “Institutions have held their target allocations steady through a period that tested confidence, as renewed interest rate volatility and geopolitical uncertainty delayed the recovery many investors anticipated coming into the year. The widening gap between actual and target allocations reflects strong public equity performance and implies meaningful capacity for new investment. While institutions remain cautious, many are positioning to invest selectively at reset valuations, and as distributions recover, this allocation headroom could support a renewed pace of investment.”

In 2026, the survey was expanded to address sector perspectives, asking institutions which real estate sectors offer the highest-conviction opportunities over the next 12 months. Industrial/logistics ranks first, selected by 66% of institutions, followed by multifamily/residential (52%) and senior housing/healthcare (49%), reflecting long-term demand drivers including evolving supply chains and demographic shifts. Data centers attract high conviction ratings from 38% of institutions, though investment remains selective amid questions about the pace of AI-related spending.

Value-add remains the most favored strategy, with 82% of institutions actively allocating capital to value-add investments in 2026. Notably, appetite for core-plus strategies increases to 75% from 68%, and core rises to 67% from 65%, its highest level since 2021, as institutions prioritize near-term cash flow and stable income. Consistent with a more measured approach to risk, appetite for opportunistic strategies (64%) declines for the second consecutive year, from 67% in 2025 and 73% in 2024. Institutions in the Americas continue to favor higher-return strategies, with 88% allocating to value-add and 76% to opportunistic, while EMEA-based institutions favor core-plus (89%) and APAC-based institutions report broad appetite across the risk spectrum. Interest in real estate credit eases slightly to 49% of institutions, from 51% in 2025 and 63% in 2024.

North America again ranks as the leading destination for capital flows, with 89% of institutions planning allocations to the region over the next 12 months, followed by Continental Europe at 65% and the UK at 58%. When asked about the United States separately, 87% of institutions cite plans to invest in the country. Appetite for cross-border investment declines across all regions, as institutions cite concerns about the impact of conflict in the Middle East and global trade wars. Approximately 68% of institutions plan to invest outside their domestic region, down from 73% in 2025.

Closed-end funds remain the preferred vehicle for institutional allocations to real estate, with 81% of institutions planning to invest in funds in 2026 and approximately 31% planning larger commitments – the highest share since 2021. Institutions also continue to place a premium on control over their portfolios, with appetite for separate accounts rising to 43% – up from 26% in 2022. Allocations to REIT strategies remain strong, with 37% of institutions actively investing in 2026. Liquidity remains the leading objective for REIT allocations at 76%, followed by access to core exposure at 46%.

Institutions expect to allocate 63% of their 2027 real estate investments to existing manager relationships and 27% to new managers, while managing 10% of new investments in-house. Willingness to invest with first-time and emerging fund managers increases to 18% from 9% in 2025.

ESG policy adoption declines for a second consecutive year, with 52% of institutions reporting formal ESG policies, down from 57% in 2025 and the lowest level since 2021. Regional differences widen, with formal policies in place at 82% of EMEA-based institutions and 62% of APAC-based institutions, compared with 27% of US institutions, the lowest level reported since 2020. Investment decisions are influenced by ESG at 37% of institutions, down from 40% in 2025, with the share highest among Australian (83%) and EMEA-based (76%) institutions and lowest in the US at 13%.

149 institutions from 24 countries participated in this year’s survey, representing aggregate AUM of approximately US$12.6 trillion and portfolio investments in real estate totaling approximately US$1.2 trillion.

About Hodes Weill, a Chatham Financial Company

Hodes Weill, a Chatham Financial Company, is a leading global capital advisory business focused on real estate, infrastructure and other real assets. 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 visit www.hodesweill.com. Chatham Financial is the leading independent capital markets advisor, helping organizations reduce risk and seize opportunity through expert advice and powerful technology. Chatham’s platform unifies data across assets, debt, and derivatives to deliver unmatched transparency and insight. Founded in 1991, Chatham serves more than 4,500 companies worldwide through 12 offices, handling US$2 trillion in annual transaction volume. To learn more, visit www.cf.com.

*US 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 the applicable non-US Hodes Weill affiliates and not affiliated companies.

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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