Capital raising for real estate investment globally has reached €201.3 billion in 2019, according to the Capital Raising Survey 2019, published by ANREV, INREV and NCREIF.
The majority of the capital raised was destined for investment into the non-listed real estate industry worldwide, increased from last year’s €154.8 billion to €196.4 billion in 2019, said in the research.
A substantial slice of the new equity raised €73.3 billion was allocated to vehicles targeting Europe, while €50.7 billion was destined for vehicles aimed at North America, and €29.3 billion was apportioned to vehicles focused on Asia Pacific.
Managers based in Asia Pacific displayed the strongest domestic bias, allocating 79.6% of the equity they raised to their home region. Their counterparts in Europe plan to invest 76.9% of capital raised within Europe, 11.0% into global strategies, 7.0% in the Asia Pacific region, and 5.1% in North America. Managers in North America, including many of the world’s largest with a global platform, showed the greatest appetite for a diversified regional allocation strategy, earmarking 42.1% of new equity for their home region, 33.2% for global strategies, 17.9% for Europe and 6.3% for Asia Pacific.
Almost half of the capital raised for non-listed vehicles (48.5%) was accounted for by funds, making these the most popular vehicle type for investors. Separate accounts investing into direct real estate accounted for 22.1% of the total. Non-listed debt products rose for the third consecutive year, jumping from 13.8% of capital raised in 2018 to 16.3% in 2019 and probably reflecting their attractiveness as a late market cycle strategy.
While pension funds still dominated as the largest contributors of capital, their share of the total has dipped over each of the past four years consecutively, from 46.4% in 2015 to 30.2% in 2019. Insurance companies increased their share of the total from 14.6% to 22.5%, over the same period. Other groups of investors, such as sovereign wealth funds, family offices, funds of funds and high net worth individuals, increased their share of total equity raised by value to a combined 31.5% in 2019.
COVID-19 presents challenges
The majority of the total new capital raised in 2019 (61.0%) was invested before the end of the year, leaving the remainder still to be deployed. However, managers and investors could now face additional difficulties with capital deployment as they adapt their strategies to deal with new and unprecedented social and economic challenges brought about by the COVID-19 pandemic.
”The survey reports that nearly 70% of managers expected an increase in capital raising activities in the next two years.”
The survey, which was conducted in January and February 2020, reports that nearly 70% of managers expected an increase in capital raising activities in the next two years. However, the new global macro-economic environment will likely significantly affect the outcome of managers’ future capital raising activities.
Lonneke Löwik, INREV CEO said: ‘These results reflect the generally optimistic mood within the real estate investment industry at the close of 2019. They also highlight a number of trends that we’ve seen continue over recent years. We can take many positives from the survey, but we are of course in a markedly different environment now. Some investors who might have considered themselves underweight in real estate before the COVID-19 pandemic could now find themselves over-exposed; and certain sectors, such as retail and hotels, will likely experience even more turbulent times ahead. We’re facing a new macro-economic reality that will undoubtedly prompt a period of strategic reappraisal and asset revaluation.
‘It’s too early to speculate on the full impact of the current pandemic on our industry, but I think it’s appropriate to assume that real estate will remain an important asset class – especially for investors with a long-term perspective. In the meantime, our focus will continue to be on helping our members, the industry as a whole, and the wider community to deal with the immediate challenges we all face, in whatever ways we can.’