UK-Focused Private Real Estate Funds – October 2014

by Thomas Barker

  • 03 Oct 2014
  • RE

Preqin’s Real Estate Online shows that real estate vehicles that include the UK within their geographic focus continue to command a strong presence in the real estate fund market, with 44 vehicles collectively targeting over $15.7bn in capital commitments. Of these funds, 59% have held at least one interim close, and have raised just over €4bn to date. The average UK-focused fund closed between January 2013 and September 2014 had a target of €472mn and raised €519mn in capital, while vehicles closed since 2007 had, on average, a target size of €402mn, but raised only €362mn in capital. This illustrates a positive outlook for funds targeting the UK, as the average amount of capital raised per fund is on the rise.

Higher-risk strategies remain dominant with these funds, with over half (57%) of UK-focused funds in market primarily focusing on value added or opportunistic strategies. Core and core-plus strategies are utilized by only 20% of the vehicles. Of all funds closed between 2007 and September 2014, value added and opportunistic strategies were utilized by 57% of funds, however, the composition of strategy allocation has changed. Core and core-plus were pursued by a higher proportion (25%) of the funds that closed between 2007 and September 2014. Debt funds are increasingly common, having been the primary strategy for only 15% of funds closed since 2007; debt is now currently the focus of 23% of the funds in market.

As illustrated by the graph above, a diverse property portfolio remains the favoured property type for funds that include the UK in their mandate, accounting for 71% of funds closed in the last seven years and 61% of funds in market. Office and residential property are the primary focus of 7% and 9% respectively of funds in market. The comparative figures for vehicles closed between 2007 to September 2014 are 10% for office and 7% for residential property. Most notably, there has been an increase in funds focused on niche property, with 14% of funds in market targeting this type of property - this previously accounted for only 3% of funds closed since 2007. Fund managers may be seeking to unlock value from this sector, where capital appreciation has been reserved in comparison with the boom across traditional sectors such as residential and commercial property. The perception among investors and fund managers alike is that core assets in prime locations are becoming expensive, which may also explain the rise of funds focusing on niche sectors of the property market. 

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