Retail-focused private real estate fundraising has experienced a gradual decline in aggregate capital raised each year since 2011. This could be due to a number of factors, such as the growth of online shopping, which may have affected investors’ willingness to commit to vehicles in this sector of the asset class. Uneven economic recovery across the globe may exacerbate this further, as it has adversely affected consumer demand within the retail sector.
However, while fundraising has slowed, the average size of vehicles has increased; funds closed in 2014 had an average size of $374mn, a substantial increase on 2013’s average of $230mn. Not only was this the largest yearly increase since 2010, but it is the largest average size of retail-focused vehicles since 2007, perhaps signifying that investors are more comfortable placing larger sums of capital with fewer partnerships.
Preqin’s Real Estate Online service currently tracks 22 funds in market that primarily target the retail sector. These vehicles are collectively targeting $7.6bn in capital commitments from investors, with funds focused on Europe targeting over half of this global total. The 10 North America-focused funds in market are seeking to raise $2.1bn collectively, with Asia- and Africa-focused vehicles pursuing the remaining $1.5bn.
It appears that if retail-focused private real estate funds are to experience resurgence, their success rests on the ability of fund managers to attract investor capital for a sector that has been in decline. ASR Dutch Prime Retail Fund, a core vehicle targeting $1.5bn, exemplifies the importance of the role larger funds will play in fundraising for the sector in the coming years. Furthermore, higher quality retail units boast attractive characteristics, such as low volatility, long lease terms and a diversified tenant base that may hedge against higher risk, cyclical investments and bolster fundraising in the coming years.