LONDON, Jan 18 Reuters More than a third of European investors plan to cut their allocations to real estate in the next two years, trade body INREV said on Wednesday, as rising interest rates and falling valuations make the sector less attractive.

Thirtyseven percent of European investors intend to reduce their exposure, compared with 20 of North American and 5 of Asian Pacific investors, according to an INREV survey of 82 investors with nearly 800 million euros 867.84 million in assets under management.

At the start of 2022 only 4 of European investors planned to cut back last year, the survey showed.

INREV is the European Association for Investors in NonListed Real Estate Vehicles.

European markets have been particularly hard hit by inflation and an energy crisis as a result of the war in Ukraine.

Rising interest rates are increasing the cost of leverage or borrowing to invest in real estate, while making other markets such as fixed income more attractive than before, industry specialists say.

European investors currently have 10.8 of their investments in property, above target allocations of 10.5, the INREV survey showed. A sharp drop in prices last year in other asset classes means property makes up a disproportionately large part of investor portfolios, the report said.

The European nonlisted real estate sector saw a 1.6 drop in capital values in the third quarter of 2022, the largest quarteronquarter fall since the global financial crisis in 2008.

The drop…