Global real estate investment managers raised at least €123bn (US$150.7bn) of new capital for non-listed real estate in 2020, according to the Capital Raising Survey 2021, published today by ANREV, INREV, and NCREIF.
However, total capital raised in 2020 fell relative to the record high of €196bn (US$220.3bn) attained in 2019, largely as a consequence of the pandemic. Nearly a third of managers said they hadn’t raised any new capital in 2020, with many citing a lack of available product as the main reason. The number of vehicles raising capital also dropped year-on-year from a record 982 in 2019 to 699 in 2020.
Despite this slowdown, on average the capital raised by individual vehicles was higher than in 2019 except for those with a North American regional strategy. The average capital raised for each vehicle with a global strategy was €0.8bn (US$ 1bn) versus €0.5bn (US$0.6bn) in 2019. Similarly, investment activity remained robust with 52 per cent per cent of capital raised in 2020 already deployed. Furthermore, more than two thirds (76 per cent) of investment managers expect an increase in capital raising activity over the next two years.
Lonneke Löwik, CEO of INREV CEO, said: “The fall in the level of capital raised in 2020 compared with the record-breaking achievement of 2019, obviously reflects the impacts of Covid-19. Not all capital has been invested and there is less investible product available. However, this research also highlights a clear sign of continuing strong investor appetite for non-listed real estate, a positive outlook on future capital raising activity among investment managers, and a general expectation that new products will emerge.”
The report found that a significant proportion of the new capital raised – 41 per cent – was allocated to vehicles targeting Europe, while 24 per cent was destined for vehicles aimed at North America, and 17 per cent assigned to Asia Pacific vehicles. The remaining 17 per cent was targeting global strategies and tended to raise a notably larger amount of capital per vehicle than the 2021 average.
Of the total capital raised, a record 60 per cent (€74bn/US$90.7bn) was destined for non-listed real estate funds, emphasising the continuing strong appetite for these vehicles among institutional investors around the world.
Managers based in Asia Pacific and Europe showed the strongest domestic bias, allocating 87 per cent and 86 per cent of the equity raised to their home territory, respectively. Investors in North America once again demonstrated the most robust preference for cross-border reach, with 32 per cent of new capital raised targeting global strategies, 43 per cent earmarked for their home region, and the remainder split between Europe (19 per cent) and Asia Pacific (6 per cent).
A total of €51bn was raised for European strategies in 2020, with non-listed funds again featuring prominently, attracting 39 per cent of all new capital raised in the region. Separate accounts were the second most important target vehicle, securing 23 per cent of the new equity.
However, non-listed debt products accounted for the largest increase in capital raised for European strategies, jumping from 4.6 per cent in 2019 to 19 per cent in 2020, with a strong preference for senior debt. This continued interest in debt products from institutional investors complements the report’s findings of a strong focus on core strategies – be it debt or equity non-listed real estate. Together, these data echo general investor preferences for lower risk strategies expressed in the 2021 Investment Intentions Survey.
For the first time since 2015, insurance companies became the most important source of capital for vehicles with a European strategy, accounting for 37 per cent of the total capital raised in the European region.
Over half (56 per cent) of the new capital raised for European strategies was allocated to funds with vintages preceding 2011. While newly launched funds – with a 2020 vintage – represented only 4 per cent of the new capital raised.
Interestingly, funds launched in 2019, accounted for 14 per cent of the total capital raised in 2020. This marks the first time, since the series began in 2011, that funds raised more capital in their second year than during their first year. This is likely due to several factors, including a lack of suitable products for investment.
Last year, the largest proportion of capital raised for single-sector strategies was targeted towards residential/multi-family apartments (38 per cent). This was followed closely by industrial/logistics (33 per cent), and then offices (16 per cent). As expected, it was another difficult year for funds offering retail strategies, which accounted for just 8 per cent of new capital raised in 2020.
The focus on residential/multi-family apartments goes hand in hand with the strong investor demand for the sector off the back of its stable income driven performance in markets such as Germany and the Netherlands, where it has been an entrenched part of the market for a long time. This is complemented by the growth of institutional investor interest in the sector in those European markets where residential has been less of an established institutional asset class until recently.
The share of new capital raised for European funds following a multi-country and multi-sector strategy increased from 41 per cent in 2014, to 62 per cent last year. While this comes at the expense of single-country multi-sector funds, they are still the second choice for investors with a share of 14 per cent. Single-country single-sector funds and multi-country single-sector funds accounted for 12 per cent and 11 per cent of total capital raised, respectively.
This move towards multi-sector and multi-country strategies reflects investors’ growing appetite for diversified strategies through large stable income producing assets, with low leverage. Increasingly, it’s an approach that appeals to, and is achievable for, smaller investors as well as their larger counterparts.
This post has originally been featured in Property Wire.