Drawing on research carried out for the 2014 Preqin Global Real Estate Report, this blog examines investor appetite for private real estate in the coming year and in the longer term. Preqin conducted a series of extensive interviews with 140 institutional investors investing in private real estate during November and December 2013 to discover their appetite for investing in the asset class in 2014, as well as which strategies they will be targeting, how much capital they will be putting to work and their criteria for fund manager selection.
Despite recent improvements in the performance and fundraising of private real estate funds, many investors remain wary of committing significant amounts of capital to the asset class, with only 41% of institutions interviewed in December 2013 having invested in private funds in the last 12 months, compared to 49% in December 2012. When looking at which investors made commitments to real estate in the last 12 months by their assets under management, larger investors were significantly more likely to commit to private real estate funds, and therefore largely accounted for the increase in capital raised in the year. Fifty-six percent of institutions with $10bn or more in assets under management invested in private real estate funds in 2013, compared to only 35% of investors with less than $10bn in total assets.
Regionally, changing regulations and a shift in attitudes towards the asset class has led to many investors located in Asia increasing their exposure to real estate. Institutions based in Asia and those located in regions outside North America and Europe were the most active in 2013, with 55% committing to at least one private real estate fund over the year. In contrast, 43% of North America-based investors made commitments in the past year and Europe-based institutions trailed behind, with only 35% having invested in private funds during the same timeframe.
Despite 68% of respondents stating that their real estate investments had met their expectations over the past 12 months, and 14% feeling that they exceeded expectations, the proportion of investors that are likely to make new private real estate commitments in the next 12 months has fallen from 53% in December 2012 to 35% in December 2013. Overwhelmingly, investors located in Asia are set be the most active in the private real estate market, with 70% of Asia-based respondents likely to make new commitments in the next 12 months. In contrast, only 34% of North America-based and 25% of Europe-based investors are likely to commit over this period.
Similarly to 2013, investment activity in private real estate in 2014 will vary greatly depending on institution size. Fifty percent of investors with $10bn or more in total assets expect to make commitments in 2014 compared to just 26% of real estate fund investors with assets of less than $10bn.