The economic uncertainty in the eurozone has contributed to a challenging fundraising market for Europe-focused real estate funds. In 2012, an aggregate €6.3bn was raised by 35 Europe-focused vehicles, a decline from the €8.5bn garnered by 37 funds in 2011, and less than one-third of the €22.5bn raised by 119 funds in 2007. Fundraising has remained slow in 2013, with €600mn raised by Europe-focused funds that held a final close between January and April 2013.
There has also been an increase in the proportion of Europe-focused funds closing below target. The proportion of funds falling short of their targets increased from 48% in 2011 to 65% in 2012, reflecting the challenges faced by Europe-focused fund managers in raising capital. Furthermore, fundraising has become an extremely lengthy process for many managers. Europe-focused vehicles that held a final close in 2012 spent an average of 19.4 months in market, longer than North America-focused funds closed in the same year, which spent an average of 18.3 months in market and Asia-focused vehicles, which spent an average of 14.6 months on the road. Europe-focused vehicles that closed in 2007 spent an average of just 8.8 months on the road, but the time fund managers spend marketing funds has steadily increased in recent years.
Although fundraising remains extremely challenging, there are signs that European investor appetite for real estate is improving. A recent study of institutional investors in real estate conducted by Preqin found that a growing proportion of investors based in Europe expect to commit to private real estate in the coming year. Thirty-nine percent of Europe-based real estate investors interviewed are planning to make new commitments in the next 12 months, compared to 32% that expected to invest in the 12 months from June 2012. The majority of institutions interviewed also expect to invest more capital in the asset class this year than they did in 2012. A greater proportion of North American and Asian investors do expect to be active however, with 48% of North American investors and 83% of Asia-based institutions planning commitments in 2013.
Most Europe-based investors remain committed to real estate, with very few expecting to reduce their exposure to the asset class. Forty-four percent of Europe-based investors plan to maintain their allocations to real estate in the next 12 months and 40% expect to increase their allocations. In the longer term, 88% plan to increase or maintain their real estate allocations. In part 2 of this blog, discover which strategies these European institutions are interested in and the outlook for the European real estate market.