Non-listed real estate attracting capital at pre-COVID levels
Capital raised for European non-listed real estate has recovered to a pre-pandemic record high, showing a 107% increase on the €123 billion raised in 2020, according to the Capital Raising Survey 2022 published by ANREV, INREV and NCREIF, presented at INREV’s annual conference in Athens in April.
Despite the shadow of the war in Ukraine looming over current investment decisions, the figure shows an “exceptional recovery” after the pandemic, the survey says, and all the signs point to the upward trajectory continuing, with 76% of respondents expecting an increase in capital raising activity over the next two years.
According to Iryna Pylypchuk, head of research and market information at INREV, “The uptick in capital raising activity in 2021 reflects the pent-up demand accumulated during the most restrictive period of Covid-19 lockdowns and a surge in investor appetite for the asset class. These results indicate a positive outlook for the real estate investment industry, notwithstanding the challenges the investment managers have been facing in terms of capital deployment, with almost half of capital raised in 2021 yet to be invested.”
The other challenge, Pylypchuk said, is that “the complex geopolitical, economic and inflationary outlook will put additional pressure on decision-making and deployment strategies in 2022.”
The survey shows that, at a global level, capital raising activity reached a record high in 2021 with at least €254 billion raised worldwide for non-listed real estate investment.
North America was the best-performing region with a total of €90 billion, more than triple the €29 billion of 2020 and almost double the €51 billion raised in 2019.
In Europe, total capital raised for non-listed vehicles reached €73 billion, back to 2019 levels and sharply up from €51 billion in 2020, a period of maximum uncertainty because of the pandemic.
Non-listed real estate funds attracted 56% of the total capital raised in 2021, maintaining their position as the most popular route to invest into real estate globally. In Europe capital was more widely spread, but non-listed funds still attracted the biggest share with 45% of the total.
JVs and club deals show biggest increase
Joint ventures and club deals reported the biggest increase in allocations for European strategies, doubling the share of capital raised from 5% in 2020 to 10% last year, and reaching a record high of €6.3 billion.
Separate accounts investing directly into European real estate were the second most-preferred vehicle type with 23% of the total, while real estate debt vehicles continued to gain importance among investors, reinforcing their position as the third most attractive vehicle type for the second year in a row with a total share of 19% in 2021.
The European non-listed debt market, unlike the US, is dominated by smaller closed-end funds and local European capital dominates, accounting for around 90% of the total capital raised in 2021. According to INREV, this is expected to change as the market evolves and more cross-regional investors get interested in the segment.
Of the vehicles following European single sector strategies, residential and industrial/logistics raised the most capital in 2021, with 12% and 11% respectively. Industrial/logistics saw the largest increase in capital raising activity, nearly doubling its 2020 share of 6% and remaining well above its ten-year average of 7%.
Core dominates, as the majority of capital raised for European strategies was earmarked for low-risk strategies. Out of the €55.4 billion raised in total, 72% was destined for core equity or senior debt strategies.