After four years of a stagnant fundraising environment, 2014 proved to be a turning point for UK-headquartered private real estate fund managers. As shown in the chart below, last year saw UK-based firms close 25 vehicles raising €10.6bn in capital, a near threefold increase on 2013’s total of €3.6bn. 2014’s figure even surpassed the record highs seen before the global financial crisis, when over €7bn was raised in both 2007 and 2008.
In terms of strategy, debt vehicles accounted for 41% of the capital raised by UK-based real estate firms, close to the 43% share they had in 2013. Value added vehicles exhibited the largest gains, rising from 5% of total capital raised in 2013 to 28% in 2014. Proportionally, opportunistic funds saw the largest drop in market share over this time period, accounting for 45% of capital raised by UK-based managers in 2013 and dropping to 18% last year.
Investor appetite for closed-end core vehicles has clearly declined over the years. In 2010, UK-headquartered firms utilizing the strategy raised proportionally more than in any other year, totalling 31% of total capital commitments. This highlights a time of heightened investor prudence following 2008; the strategy had since seen a decline in prominence, accounting for just 1% of capital raised by UK-based real estate fund managers in 2014.
A predominant theme in the real estate industry is the tendency for firms to invest domestically. UK-based firms are no exception, with over 80% of capital raised each year since 2006 targeting European property, with the figure closer to 90% each year since 2010. What has changed is the distribution of capital across non-European markets. None of the capital raised between 2008 and 2011 targeted the US, with UK-based managers preferring to invest the capital they did not deploy in Europe in the Asia-Pacific region. However, since 2012, this trend has reversed, with the US receiving the vast majority of non-European investment, at the expense of the Asia-Pacific region.
In the year ahead, UK-based real estate firms could be set to continue their strong fundraising performance in 2014, as Preqin’s Real Estate Online service shows 32 vehicles currently being marketed by UK-headquartered firms, targeting a collective €13.1bn. 2015 could once again be a year for debt and value added real estate funds, with €6.1bn and €3.3bn targeted by vehicles with these strategies respectively.