Norway's sovereign wealth fund recorded a 7.5% return on its 2017 unlisted real estate investments, which had a net market value of 218.6 billion kroner, according to Norges Bank Investment Management's latest report.
At the end of 2017, unlisted real estate investments accounted for 2.6% of the Government Pension Fund Global, 70.4% of which were concentrated in nine strategic cities across the globe. The fund held 22.8% of its real estate holdings in London, marking its largest single-city exposure. Following closely were New York City and Paris, at 21.5% and 19.1%, respectively.
By country, the U.S. was the top real estate investment destination for the fund as of Dec. 31, 2017, followed by the U.K. and France. By sector, the office segment was the fund's primary focus, followed by logistics and retail. At the end of 2017, the fund invested 58.2% in office properties, 21.2% in logistics facilities and 19.4% in retail assets. In 2016, the fund's investments in the office, logistics and retail sectors accounted for 63.6%, 22.2% and 12.0%, respectively.
"2017 was characterized by continued market uncertainty, and global investment activity was similar to that of 2016, albeit with local variations. Capital value growth continued, but investors are finding it difficult to assess what direction markets will take. Property yields are still record-low, yet the gap to the risk-free rate is wide in many markets, making real estate a relatively attractive asset class," Norges Bank Real Estate Management CEO Karsten Kallevig said in the report.
Kallevig also expressed optimism for 2018 and beyond, saying: "Although we cannot expect positive returns every year going forward, our real estate investments will continue to generate stable rental income to the fund." The executive added that the fund, which adopted a new financing model in 2017, will continue to acquire good assets in good locations and that it will continue to diversify, thanks to unlisted real estate.
The Norwegian fund, considered to be the world's largest sovereign wealth fund, also made its first transaction in Asia in 2017 with its purchase of five properties in Tokyo, Kallevig said.
Norges Bank Real Estate is the real estate arm of Norges Bank Investment Management, which manages Government Pension Fund Global.
As of March 12, US$1 was equivalent to 7.76 Norwegian kroner.
