The real estate industry has been running slightly counter-cyclical to the wider private capital industry in recent quarters. While fundraising in private equity and private debt has been declining since the middle of 2018, real estate funds surged to their highest fundraising in over a year in Q1. That peak has been followed by a steep decline in Q2, however, and the number of funds closing has fallen to levels not seen in over a decade.
The real estate industry has long been something of a bellwether for private capital over recent years, with concerns over pricing pressure and future returns emerging here first before becoming widespread in private equity or infrastructure. The collapse in fund closures may strike a warning note for other asset classes in that regard, but it is worth noting that the real estate industry is operating under unique conditions. There is more involvement from public, listed and corporate investors, and the industry depends on under-siege sectors like retail and office real estate for deal opportunities.
What future can the industry expect in the coming quarters? Not a universally negative one, certainly. Investors are generally looking to put less money towards fewer funds than they were a year ago, but appetite remains substantial. A shift as investors look more towards core assets bodes well for that part of the market, even if it seems likely to intensify pricing pressure, and the presence of large opportunistic funds in market suggests managers still see significant appetite there.
Despite negative attention in recent weeks, it seems that the fundamentals of the industry remain strong; given the turbulence in more liquid markets, we may yet see real estate rebound in the coming months.
For further in-depth analysis on fundraising, deals, performance and investor data from the quarter, download the newly-released Preqin Quarterly Update: Real Estate, Q2 2019.
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