Europe: A Wall of Capital – November 2014 (Part I)

by Olivia Harmsworth

  • 14 Nov 2014
  • RE

European fundraising has improved dramatically over the last year, reflecting growing investor appetite for the region. Almost 90% of Europe-based fund managers surveyed by Preqin believe investor appetite has significantly or slightly increased over the past year, with none stating they have seen a decrease in appetite. This has led to a large amount of capital focusing on Europe and while transaction volumes are up, pricing is becoming competitive. It is now harder to find attractively priced assets, particularly in the major markets in the UK and Germany. 

There has been considerable growth in the European private real estate market. A total of €21.5bn has been raised by 30 funds reaching a final close in 2014 YTD, already greatly exceeding the €11.2bn raised by 27 funds closed in the whole of 2013. This represents the largest amount of capital raised by Europe-focused funds since 2008, demonstrating an overwhelming growth of confidence in the region’s real estate market. 

In global terms, Europe has accounted for 44% of aggregate capital raised by private real estate funds in 2014 so far, an increase from 2013 when the region represented just 17% of total capital raised. Correspondingly, the proportion of aggregate capital raised focusing on North America has declined from 68% in 2013 to 49% in 2014 so far. As a result of the significant growth in European fundraising over the past 12 months, dry powder for Europe-focused funds currently stands at an all-time high of €52bn, a 44% increase since December 2013. In contrast, dry powder for North America-focused funds has risen from €84bn to €89bn, an increase of just 6%. 

Many fund managers raising Europe-focused funds are also exceeding their target size, with 62% of Europe-focused funds closed in 2013 to 2014 so far reaching a final close above their initial target size. In comparison, 39% of North America-focused funds have exceeded their target size, with 45% closing below target. 

Funds focusing on opportunistic investments in Europe have raised the most capital for the region in 2014 so far, with 10 such funds closed and a total of €6.9bn raised. Distressed funds also raised a relatively notable amount of capital, with €5.4bn raised by just two funds. Seven debt funds have closed raising €3.8bn, representing a record amount of capital raised by the strategy in Europe. Four of the top 10 Europe-focused funds closed so far in 2014 focus solely on debt investments, with a further two funds including the strategy within their remit. 

Europe-focused funds closed in 2014 have, on average, spent less time in market than North America-focused funds, at 16 months compared to 19 months. In comparison, in both 2011 and 2012, funds focusing on European investments spent an average of 20 months on the road, compared to 18 months for North America-focused funds, demonstrating that managers are increasingly able to reach a final close more quickly when raising funds focusing on European investments.

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