Institutions Hold Real Estate Target Allocations Steady, While Under-Allocation Widens to 120 Basis Points, Finds Hodes Weill and Cornell University

Institutional target allocations to real estate held at 10.7% in 2026 following the survey's first decline in 2025, according to 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 raise targets by 10 basis points to 10.8% in 2027, and 22% plan to increase targets over the next 12 months, the highest share since 2022.

Actual allocations declined to 9.5% from 9.8%, widening the gap between actual and target allocations to 120 basis points from 90 basis points in 2025. This is the third consecutive year the gap has widened and the largest shortfall since 2021. The survey attributes the shortfall to strong public equity performance driving growth in overall portfolios. About 54% of institutions report being under-allocated, up from 40%. 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 deployment will depend on institutional conviction.

Portfolio returns improved to an average of 3.3% in 2025 from 1.4% in 2024, with 78% of institutions reporting positive returns. Returns in the Americas rose to 3.9% from 0.3%, EMEA rose to 3.8% from 3.5%, and APAC declined to 0.7%. Trailing returns remain below the 8.1% average target return, though returns since 2012 have averaged 8.1%. Investor sentiment weakened, with the Conviction Index declining to 6.0 from 6.4, matching its five-year low. Douglas Weill, Senior Managing Director at Hodes Weill, said institutions have held targets steady through a period when renewed rate volatility and geopolitical uncertainty delayed anticipated recovery, and that many are positioning to invest selectively at reset valuations.

Infrastructure ranked as the leading asset class competing with real estate for allocations for the first time, cited by 60% of institutions, followed by private credit (54%), fixed income (48%) and private equity (44%). Industrial/logistics led sector conviction at 66%, followed by multifamily/residential (52%) and senior housing/healthcare (49%). Value-add remains the most favored strategy at 82%, core-plus rose to 75% and core to 67%, while opportunistic appetite fell to 64%. Closed-end funds remain the preferred vehicle, with 81% of institutions planning fund investments and 31% planning larger commitments. Willingness to invest with first-time and emerging managers rose to 18% from 9%.

The survey covered 149 institutions from 24 countries, representing aggregate AUM of approximately US$12.6 trillion and real estate portfolio investments of approximately US$1.2 trillion.