The Capital Raising Survey 2017 revealed a modest 1.4% decrease on the previous year but a continuing interest in the asset class from institutional investors across Europe and beyond as €500bn has been invested in non-listed real estate since 2012.
Almost half of the total capital raised (46.5% or €56.6bn) was for vehicles with a European strategy. By contrast, 26% of total capital (€31.6bn) was raised for North American-focused vehicles and 17.8% (€21.7bn) was raised for vehicles with an Asia Pacific strategy – a significant uplift from last year’s €16.9bn.
Pension funds and insurance companies were the dominant investor type, representing a combined 62.5% of the total.
“While the numbers are still significant, the drop-off in total capital raised seen in this year’s survey is interesting. It might reflect the challenges of deployment and a more generally cautious approach to capital raising from fund managers,’ said Henri Vuong, INREV director of research and market information.
The largest share of new capital raised came via fund managers’ existing relationships indicating the importance of trust and a growing alignment between fund managers and investors. This accounted for €94.3bn of the total capital raised and was particularly prevalent among fund managers in North America where direct relationships accounted for 90.5% of all capital raised. In Europe, it was 70.7% and 59.9% in Asia Pacific.
Fund managers in Asia Pacific were alone in their continued significant use of placement agents who accounted for 25.6% of the total equity raised in this region. In North America and Europe this percentage was less than 5%.
In line with previous years, the largest share of capital (49.9%) was raised for non-listed real estate funds. However, the spread of vehicles reflects the growing choice of products and maybe also investors’ desire for greater diversification. Separate accounts took 23.4% of all new capital, followed by joint ventures and club deals attracting 13.8% of capital and non-listed debt products, separate accounts investing in indirect vehicles, and fund of funds picking up 6.9%, 3.5% and 2.5% respectively.
Changing geographic and sector preferences might also reflect the increased desire for spreading investment risk. Non-listed real estate funds with a global strategy were deemed the most popular, attracting 48% of total capital. Also, two thirds (65.5%) of capital raised for European non-listed real estate funds was for vehicles targeting a multi-country strategy – a significant shift from 2015 when over half of the capital raised (53.3%) was destined for single-country vehicles.
One of the most striking results was the dominance of retail funds, which attracted 14.7% of capital –more than a third of the total for single-sector funds – displacing residential (with 6.5%) from its top slot in 2015. As to other sectors, office took 5.8% of total capital, with industrial/logistics at 4.1% and hotels at 3.4%.
Vuong said: “The continued flow of capital into real estate is a clear vote of confidence in the asset class. However, these results also signpost some potentially significant, if subtle, shifts in the market. Investors could be sensing a turning point on the back of the longest cycle we’ve witnessed in recent years.”