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Real Estate Investing by Insurers: Examining Current Views on the Asset Class

Re-evaluating Real Estate: A Closer Look

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While real estate has long been an important asset class for insurers, investing in this sector requires far more than a one-size-fits-all approach. As insurers currently ponder how to best to match their liabilities and funding needs in the future in a close to 0%-interest-rate environment, they may reconsider the share of real estate in their portfolio of alternatives assets: when seeking incremental yield on a risk-adjusted basis, real estate may compare favorably to other alternative investments available today.

Considering the effects of the global pandemic and its impact on the real estate sector, we sought to gauge the current views of insurers on investing in this asset class. We conducted a brief survey with 120 insurers, across various insurance company types and sizes, skewing to the larger end of the market (see p.17 of the full report for the complete picture of the respondents). What we discovered offers a realistic view as well as an optimistic perspective.

Among the insights yielded by our research:

  • On the cautionary side of the discussion, the main barriers to investing include transparency and liquidity.

  • The majority of CIO respondents say that the office sector will not be quite as challenged as some believe, and that workers will return to their office spaces following lockdowns for extended periods. Office spaces will become hoteling spaces, with floor plans reduced in some cases to what organizations will truly need.

  • However, there was a split response among CIOs surveyed on how their own organization’s office footprint is changing; savings achieved by a smaller commercial space are not insignificant, and will be a factor as some leases expire and landlords gain a clearer picture of which tenants will return and which will seek a smaller or more inexpensive spaces elsewhere.

  • Most CIOs believe that volatility will continue across the entire commercial real estate sector/asset class itself, as too many wild cards remain in play as to when organizations will return to their office spaces.

  • ESG (Environmental, Social and Governance) factors were cited among survey respondents as critical to consider when investing in commercial real estate. Questions abound over how “green” the buildings truly are, raising queries about true sustainability and precisely how properties are being managed – particularly from an environmental standpoint.

  • Public and private real estate equity allocations are expected to increase overall, whether they be investment trusts purchased through publicly available offerings or private commingled vehicles or direct transactions.

We hope you find the details of the survey helpful in comparing your perspectives on real estate.

To view the full report, click here