Germany has become the preferred location for investment in non-listed property funds in 2011 overtaking the UK which has been the leader for the past two years, according to a report by a Dutch investment research specialist.

The European Association for Investors in Non-listed Real Estate Vehicles (INREV) survey – which questioned investors, fund of funds managers and fund managers over their property investments – revealed that German retail was selected by 36% of investors as both their preferred location and sector.

This signals a stark change in sentiment from 2010, when German retail failed to even reach the top ten. The UK has been the frontrunner over the past couple of years among investors but is now considered less attractive than the German, French and Nordic markets.

‘This is a dramatic change in sentiment,’ said Lonneke Löwik, the firm’s director of research. ‘Over the last two years the UK dominated the rankings with UK retail, UK office and UK Industrial/Logistics included in the top four most preferred country/sector combinations.

‘While the UK remains well represented in the top ten, investors seem wary of higher property prices and a slower economic recovery in the UK but attracted by growing confidence in the German and other European markets.’

The survey also revealed a cautiously optimistic outlook for 2011 with nearly 70% of both investors and fund managers saying there was an adequate supply of investment products and interest in their preferred markets – a reversal of perceptions from the 2010 survey.

The importance of regulatory issues has also has increased substantially for fund managers since last year. The 2010 survey showed that 14% found regulatory issues to be an obstacle, but for 2011 this figure has increased to 37%.

Regulatory issues also feature as an obstacle for 16% of fund of funds managers, whereas last year no fund of funds managers viewed regulatory issues as a problem.

‘Given the general economic turmoil of the last two years and the increasing levels of regulation, we might have expected less than positive investor sentiment. However, our survey indicates encouraging signs about investor confidence in the non-listed real estate sector,’ said Löwik.

In terms of investment strategies, 90% of investors are expressing a preference for a single country strategy – an increase of 13 percentage points on 2010.

‘These statistics suggest that investors believe that possessing a deeper understanding of a particular location or sector could be less risky than the benefits of diversification through a multi-country, multi-sector strategy,’ said Löwik.