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A new global survey shows that institutional investors are dialing back their commercial real estate (CRE) allocations for 2025 for the first time in 13 years. According to the Institutional Real Estate Allocations Monitor, target allocations dropped by 10 basis points to 10.7%, ending a three-year plateau following a decade of strong growth.
However, this decline is expected to be temporary, with forecasts projecting a rebound to previous levels in 2026.
The survey, conducted by Hodes Weill & Associates and Cornell University, included 166 institutions from 26 countries managing $1.4 trillion in real estate assets. It found that rising market uncertainty and more attractive returns in other asset classes have contributed to this slight pullback in CRE investments.
The most significant reduction in target allocations came from institutions in the Asia-Pacific region, which cut their exposure by over 100 basis points year-over-year.
Investors in the Americas reduced their allocations by 40 basis points, while allocations in Europe and the Middle East remained steady.
Looking ahead, increased activity from European and Middle Eastern institutions is expected to drive the 2026 recovery, with American and Asian firms maintaining steady allocations, according to BisNow.
Despite underwhelming returns in recent years, with global CRE portfolios posting just a 1.4% gain in 2024 after a 1.4% loss in 2023, sentiment is improving as inflation, interest rate, and geopolitical concerns ease.
Another notable finding is the widening gap between institutions’ target and actual allocations to CRE, currently averaging a 90 basis-point shortfall. This gap reflects stronger returns in other sectors and a cautious approach to new CRE investments.
Concerns that nationalist policies might limit cross-border investment have not materialized. In fact, American institutions reported increased international acquisitions, with 92% of all surveyed firms planning to add U.S. assets in 2025 — a four-year high. Canadian investors also boosted their cross-border activity by nearly 20% compared to last year.
Overall, the data suggests a tactical pause rather than a move away from commercial real estate, as institutions remain confident in the sector’s long-term potential.
