Pension funds gave non-listed real estate a resounding vote of confidence last year, contributing EUR57.3 billion (46.4 per cent) of all new equity, according to the 2016 Capital Raising Survey, published by INREV, ANREV and NCREIF.
Insurance companies (14.6 per cent) came second and sovereign wealth funds (10.8 per cent) third. Interestingly, 2.6 per cent (over EUR3 billion) of capital came from high net worth individuals.
Europe remains the primary destination, taking 51.1 per cent (EUR63.1 billion) of the total capital. Vehicles with North American strategies accounted for 27.9 per cent (or EUR34.5 billion) and those focused on Asia Pacific took 13.6 per cent (EUR16.9 billion). Of the 321 vehicles for which North American fund managers raised new capital, almost half (48.3 per cent) had a European strategy, demonstrating the region’s continued popularity on the other side of the Atlantic.
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 EUR8.5 billion (6.9 per cent) 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 per cent), followed by direct investment through separate accounts (24.4 per cent) and joint ventures (13.3 per cent). The survey also shows that debt remains a prominent feature in non-listed real estate, drawing 9 per cent of total new capital. Most of this – 72.1 per cent – was raised from European investors. European debt products attracted EUR3.6 billion of equity thanks to the considerable amount of choice in this part of the market.
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 per cent) 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 per cent. The second most popular strategy was residential, attracting 9.4 per cent of the total, equalling a third of all new capital for single-sector funds and representing a jump from 10 per cent to 33.3 per cent since 2010. Conversely, only 2.9 per cent 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,” says Henri Vuong, INREV’s Director of Research and Market Information.