Capital raised for real estate investment pre-Covid-19 hits record high
Real estate investment managers recorded a bumper year for capital raised globally in 2019, reaching a new high of EUR201.3 billion, according to The Capital Raising Survey 2020, published today by ANREV, INREV and NCREIF.
The survey also highlights a significant uptick in the volume of equity raised specifically for non-listed vehicles – increasing from EUR154.8 billion in 2018 to EUR196.4 billion in 2019.
A substantial slice of the new equity raised – EUR73.3 billion – was allocated to vehicles targeting Europe, while EUR50.7 billion was destined for vehicles aimed at North America, and EUR29.3 billion was apportioned to vehicles focused on Asia Pacific.
Managers based in Asia Pacific displayed the strongest domestic bias, allocating 79.6 per cent of the equity they raised to their home region. Their counterparts in Europe plan to invest 76.9 per cent of capital raised within Europe, 11.0 per cent into global strategies, 7.0 per cent in the Asia Pacific region, and 5.1 per cent 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 per cent of new equity for their home region, 33.2 per cent for global strategies, 17.9 per cent for Europe and 6.3 per cent for Asia Pacific.
Almost half of the capital raised for non-listed vehicles (48.5 per cent) 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 per cent of the total. Non-listed debt products rose for the third consecutive year, jumping from 13.8 per cent of capital raised in 2018 to 16.3 per cent 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 per cent in 2015 to 30.2 per cent in 2019. Insurance companies increased their share of the total from 14.6 per cent to 22.5 per cent, 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 per cent in 2019.
The majority of the total new capital raised in 2019 (61.0 per cent) 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, which was conducted in January and February 2020, reports that nearly 70 per cent 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, says: ‘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.’