While core funds remain the most widely targeted strategy by Europe-based investors, the proportion of real estate investors targeting core funds has fallen from 71% in Q3 2012 to 60% in Q1 2013. Investor appetite for opportunistic, distressed and debt funds has increased in the same period. However, Europe-based investors are more likely to be targeting lower-risk strategies than those based in North America, with a greater proportion targeting core or core-plus strategies and fewer planning new commitments to value added or opportunistic funds.
Investor interest in debt funds has seen the largest increase, with 27% of European institutions seeking debt funds in the next 12 months, up from the 11% that were seeking such funds in Q3 2012. The number of Europe-focused debt funds on the road has grown significantly in the last 12 months. There were only five debt funds targeting Europe in April 2012, aiming to raise €1.3bn in equity, but this has increased to 18 funds with an aggregate target of €9.6bn in April 2013. New fund managers are entering the debt market, while established managers are also creating new platforms to invest in real estate debt. This growth reflects both the opportunity that many believe exists in this segment of the market and the growing investor appetite for this strategy.
Raising capital for Europe-focused funds remains a challenging prospect, with the fundraising process taking an increasing amount of time for most managers and many firms forced to close funds below target. Many Europe-based investors remain cautious and, as a result, lower-risk strategies are widely targeted. However, recent months have seen a notable increase in appetite for debt funds, and a growing number of managers are bringing such vehicles to market. Fundraising looks certain to remain challenging in 2013, but a growing proportion of Europe-based investors are planning new commitments, and the majority expect to commit more capital in 2013 than they did in 2012. Some firms raising Europe-focused funds will likely achieve considerable success in the coming months, but for many others fundraising looks set to remain a challenging process.