Institutional investors around the world are keeping their real estate targets where they were a year ago, but their portfolios keep drifting further below them. Actual real estate holdings among institutions fell to an average 9.5% of assets in 2026 against a 10.7% target, a 120-basis-point shortfall, according to the 14th annual Institutional Real Estate Allocations Monitor released Nov. 11 by Hodes Weill, a Chatham Financial company, and Cornell University’s Baker Program in Real Estate.
The gap was 90 basis points in 2025. The release says this is the third straight year it has widened and the largest shortfall since 2021. About 54% of institutions now say they are under-allocated to real estate, up from 40% last year and also the highest share since 2021.
Institutional real estate allocations: the gap, in dollars
The survey’s authors put a number on what that headroom could mean. Applied to an estimated $147 trillion of global institutional assets, they say, the gap implies roughly $1.8 trillion of potential additional real estate investment, though they caution that actual deployment “will depend on institutions’ conviction to invest.”
The report attributes the shortfall largely to the denominator rather than to selling: strong public equity performance has swelled total portfolios, shrinking real estate’s share despite positive returns and limited distributions.
Targets themselves are flat. The 10.7% average matches 2025, when targets fell for the first time in the survey’s history. Institutions expect a 10-basis-point increase to 10.8% in 2027, and 22% plan to raise their targets over the next 12 months, the highest share since 2022.
“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,” Douglas Weill, senior managing director at Hodes Weill, said in the release. “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.”
Returns improve, conviction slips
Institutional real estate portfolios returned an average 3.3% in 2025, up from 1.4% in 2024, and 78% of respondents reported a positive return. The Americas improved most, to 3.9% from 0.3%. EMEA rose to 3.8% from 3.5%, while Asia-Pacific slipped to 0.7%.
Trailing results still fall short of what investors want. Three-, five- and 10-year returns averaged 1.1%, 6.0% and 7.1%, against an 8.1% average target. Since 2012, the first year of performance data in the survey, returns have averaged 8.1%.
Sentiment moved the other way. The survey’s Conviction Index, which scores real estate’s risk-return appeal from one to ten, fell to 6.0 from 6.4, matching its five-year low. Interest rates remained the leading risk, cited by 92% of institutions, up from 79% a year earlier. The share citing inflation rose to 43% from 33%.
The survey closed in September, before October’s 0.4% consumer price increase added to talk of further Federal Reserve tightening, so its responses predate that report. For the first time, infrastructure ranks as the asset class competing hardest with real estate for allocations, named by 60% of institutions, ahead of private credit at 54%.
Where the money wants to go
This year’s survey asked for the first time which sectors offer the highest-conviction opportunities over the next 12 months. Industrial and logistics led at 66%, followed by multifamily and residential at 52% and senior housing and healthcare at 49%. Data centers drew high-conviction ratings from 38%, though the authors say investment there remains selective amid questions about the pace of AI-related spending.
Risk appetite is moving toward income. Value-add remains the most widely used strategy, at 82% of institutions, but core-plus rose to 75% from 68% and core to 67%, its highest since 2021. Opportunistic strategies fell for a second year, to 64%. Interest in real estate credit eased to 49%, from 51% in 2025 and 63% in 2024.
North America remains the top destination, with 89% of institutions planning allocations there over the next year and 87% citing plans to invest in the United States specifically. Cross-border appetite fell across all regions: 68% plan to invest outside their home region, down from 73%, with respondents citing conflict in the Middle East and trade wars.
What it means for fund managers
Closed-end funds remain the main vehicle, with 81% of institutions planning fund investments and about 31% planning larger commitments, the highest share since 2021. Separate accounts drew interest from 43%, up from 26% in 2022. Institutions expect to send 63% of 2027 real estate investments to existing managers and 27% to new ones, and willingness to back first-time and emerging managers doubled to 18% from 9%.
That combination fits a fundraising market that has favored the largest platforms, as when Brookfield reported a record $77 billion in second-quarter inflows, while specialist vehicles such as Nuveen’s fourth C-PACE lending fund have still found capital. On our reading, the survey suggests the money exists for a broader recovery; the open question it leaves is whether rate volatility lets institutions act on it.
Other findings: 37% of institutions are actively investing in REIT strategies, mainly for liquidity, and formal ESG policies fell to 52% of respondents, with just 27% of U.S. institutions reporting one versus 82% in EMEA.
The 2026 survey drew blind responses from 149 institutions in 24 countries, representing about $12.6 trillion in assets and $1.2 trillion of real estate investments, and was conducted from June through September 2026. The full 38-page report is available on Hodes Weill’s website. More institutional capital coverage is in our commercial real estate section.
