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25. Oktober 2012     Print Print 

Global real estate private equity industry continues to struggle

The consolidation of public finances in Europe is having an increasing impact on consumption and is directly influencing GPD growth of many economies. The current situation has turned out to be the biggest challenge for global economic development. Although interest rates are expected to be held artificially low for an extended period by central banks, the global outlook for the property sector is heterogeneous, as many banks are reducing their financing capacities due to regulatory requirements.

In the first nine months of 2012 (Q1-Q3 2012) a total of 183 new funds with a target equity of USD 71.8bn were launched (in the third quarter of 2012, 56 new funds with a target equity of USD 22.9bn were launched). The recovery dynamic that was palpable in the first half of 2012 seem to have completely faded and shows that the industry continues to struggle amid global economic woes.

The reasons behind this trend remain practically unchanged compared to the previous reporting periods. The numbers registered in this period leave little expectation for an upwards trends in the near future. There are currently too many funds on the market chasing a handful of investors that possess the capacity to make commitments. Currently there are more than 630 funds worldwide that are on the market raising capital for their vehicles.

The industry in general is still suffering from the reserved position of investors towards indirect investments and the increasing demand from large investors for directly held properties, joint-ventures and club-deals. Accordingly, in the first 9 months of 2012, the pace of fundraising slowed down. Overall, in the first nine months, only 70 funds with an equity volume of USD 28.8 billion were closed.

In relation to the risk allocation in 2012, significant shifts have occurred in comparison to the previous year. The market share of core funds declined from 26.0% in 2011 to 20.0% in the reporting period, mainly due to the saturation effect of core funds in Europe. Compared to last year, value-added funds were able to increase their market share significantly. These are mainly focused on the North American continent. The market share of value-added funds increased globally from 25.7% (Q1-Q3 2011) to 35.2% in 2012. Opportunistic funds witnessed a slight decline in terms of the market share from 48.4% in 2011 to 44.9% in 2012.

With regards to geographical allocation, North American funds top the list in 2012 with a total of 87 fund launches with a corresponding target equity volume of USD 30.2bn. This represents 42% of the entire market and is above the long-term average market share (2005-2011) of 36.2%. These numbers document a sustained interest from fund manager and investors alike for investments in the US and Canada.

The first nine months of 2012 were marked by specialised strategies when looking at the sector allocation of funds. Specialised funds accounted for 57.9% of the market, a stark increase from last year’s recorded 50.7%. The specialised strategy that has been the most popular amongst fund managers in 2012 is the debt strategy. In total, 30 debt funds with a target equity volume of USD 17.8bn were launched this year which entitles them to 24.8% of the entire market share. This is a sharp increase when compared to the market share of 10.1% recorded last year and also well above the long-term average (2005-2011) market share of 12.0%.

Residential focused funds were also able to gain popularity with the launch of 30 funds and a target equity volume of USD 7.4bn giving them a market share of 10.3%. The Industrial/logistics space experienced major changes over the year as such funds significantly increased their market share from 1.4% for the first nine months in 2011 to 5.4% for the first nine months in 2012. For 2012, a total of 11 new industrial funds with a target equity volume of USD 3.9bn were launched.