Record year of fundraising sees Europe still preferred - INREV

A new record of €123.6 billion of fresh capital was raised for non-listed real estate in 2015, with Europe still the preferred destination for over half that capital.

Pension funds gave a strong thumbs-up to non-listed real estate last year, contributing €57.3 billion (46.4%) of all new equity. Insurance companies (14.6%) came second and sovereign wealth funds (10.8%) third, while fully 2.6% (over €3 billion) of capital came from high net worth individuals.

These were among the findings of the 2016 Capital Raising Survey, released at the recent MIPIM in Cannes by INREV and its Asian and US sister associations ANREV and NCREIF.

Europe remains the primary destination, taking 51.1% (€63.1 billion) of the total capital. Vehicles with North American strategies accounted for 27.9% (or €34.5 billion) and those focused on Asia Pacific took 13.6% (€16.9 billion). Of the 321 vehicles for which North American fund managers raised new capital, almost half (48.3%) had a European strategy, demonstrating the region’s continued popularity on the other side of the Atlantic, say the researchers.

This year, for the first time, the survey included global strategies as one of the options respondents could select in terms of where they might focus new equity. The €8.5 billion (6.9%) raised for this category points to the ever-increasing globalisation of real estate as an asset class.

Non-listed real estate funds were the most popular vehicle for capital by some way and represented almost half of the total sum (47.3%), followed by direct investment through separate accounts (24.4%) and joint ventures (13.3%). The survey also shows that debt remains a prominent feature in non-listed real estate, drawing 9% of total new capital. Most of this - 72.1% - was raised from European investors. European debt products attracted €3.6 billion of equity thanks to the considerable amount of choice in this part of the market, say the researchers.

The overall results underline not just the ongoing viability of the industry but the breadth of opportunity within it. The majority of fund managers (73.2%) expect to see this upward trend continue over the next few years.

Nowhere was this clearer than in the analysis of the equity raised for European non-listed funds by sector strategy. Unsurprisingly, multi-sector took the lion’s share at 71.8%. The second most popular strategy was residential, attracting 9.4% of the total, equalling a third of all new capital for single-sector funds and representing a jump from 10% to 33.3% since 2010. Conversely, only 2.9% was directed to office funds, ranking it in fifth place amongst single-sector strategies.

“The volume and variety of vehicles that received fresh equity last year is testament to the breadth of opportunity in the non-listed real estate market. But the continuing increase in the volume of capital being raised also brings with it challenges relating to deployment, which is likely to become tougher. Investors and fund managers may need to shift their preferences for risk, style and region to find the investments that can deliver attractive returns,” said Henri Vuong, INREV’s Director of Research and Market Information.