Growth in new capital continues despite challenging fund-raising environment
Property services specialist DTZ, a UGL company, estimates there to be USD320bn of new capital available for investment in 2013, a 3% increase on the USD311bn reported six months ago.
The growth in new capital available for investment continues despite a challenging environment for raising funds. Investors are still absorbing losses on existing legacy investments as uncertainty remains over the economic recovery. Increasing regulations further add to the uncertainty and costs of running funds for those in a position to raise capital.
The DTZ report tracks both newly-raised capital and funds seeking to raise new capital to target direct real estate. The research highlights an increase in available capital across all regions except EMEA, which saw a marginal 1% fall in available capital from USD115bn to USD114bn. The Americas saw the biggest increase as available capital grew 8% to USD124bn, with a 3% increase in capital targeting Asia Pacific which now totals USD82bn.
Nigel Almond, Head of Strategy Research at DTZ, comments: “The fall in capital targeting the EMEA region reflects a reduction in the target gearing ratio as the availability of debt remains restrictive. In aggregate the target gearing ratio in the region fell to 46% from 50% six months ago. This is consistent with the challenges both investors and lenders face in the current market environment. Encouragingly, the amount of available equity grew 6% to USD62bn underscoring investors’ faith in the region’s markets.”
The reduction in target gearing was evidenced across all regions, and fell by four percentage points in the Americas (from 60% to 56%) and five percentage points in Asia Pacific (56% to 51%). However, both Asia Pacific and the Americas saw greater increases in equity targeting their region up 15% (to USD40bn) and 19% (to USD55bn) respectively. This strong growth was more than sufficient to offset the impact of lower target gearing ratios. The increase in equity targeting these two regions is reflected in the attractiveness of these two regions. According to the latest DTZ Fair Value IndexTM the US remains the most attractive market globally with an index score of 87, followed by Asia Pacific on 82.
Single country funds again continue to dominate reflecting 53% of raised capital. Of funds targeting a single country, a high proportion (43%) is targeted towards the US. A further 10% is focussed on China and 9% towards the UK. Across Europe, Germany is the next most targeted market attracting a further 4% of capital, followed by France (3%) and Italy (2%).
Over the last six months the amount of new capital being raised has slumped by over 30% to USD34bn. This reflects the difficulties funds have encountered in successfully raising funds over the last 12 months, with a number of funds taking longer to reach their target commitment. As a result, the growth in new funds has slowed across all regions. At the same time the amount of raised capital has grown, up 10% to USD286bn in the same period as some funds reach an early close.
Hans Vrensen, Global Head of Research at DTZ, says: “Funds continue to remain focussed on their home market or region, reflecting the uncertain market environment and investors’ risk aversion. In both EMEA and the Americas, over 90% of capital is to be deployed domestically or within the same region. Asia Pacific is the only market where we see a higher proportion, close to a quarter of new capital, coming from outside of the region. With just 5% of capital deployed in Asia Pacific in 2012 from outside the region, this data points towards significantly higher levels of cross border investment into the Asia Pacific region.”
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