Global private real estate fundraising in the first quarter of 2023 fell 48.1 percent year-on-year to $25.9 billion amid an intensification and deepening of near-term investor caution, according to data provider Realfin.
The number of private real estate funds reaching a final closing fell by 43.4 percent year-on-year to 98 vehicles during the first three months of the year, London-based Realfin said in its Q1 State of the Market Report.
Real estate debt emerged as a favoured theme, with debt vehicles occupying four of the 10 slots in Realfin’s ranking of the largest final closings in the first quarter. Only a single fund targeting Asia Pacific cracked the top 10: DNE Group’s New Economy Infrastructure Assets Fund focused on China opportunities.
“Investors pushed harder on the brakes in the first quarter as uncertainty and risk broadened and deepened during the period amid the so-called polycrisis,” Realfin said.
North American Might
North America easily led all target geographies by capital raised for private real estate funds in the first quarter, attracting 54.6 percent, followed by Europe (32.1 percent), Asia Pacific (11.1 percent), multi-regional (1.4 percent) and the rest of the world (0.8 percent).
The biggest final closing of the quarter was for US-based Bridge Investment Group’s Bridge Multifamily Fund V, a value-add vehicle targeting North American residential properties that exceeded its $2 billion target size by $260 million.
UK-based Tristan Capital Partners closed on $2.15 billion for its Tristan European Property Investors Special Opportunities 6, coming up short of the fund’s $2.81 billion target, while US-based Artemis Real Estate Partners sealed up $1.9 billion for Artemis Real Estate Partners Fund IV, a North American debt strategy.
China’s DNE Group closed on RMB 6 billion ($871 million) in commitments for its onshore fund pursuing investment opportunities in new economy infrastructure assets in key economic hubs. The seed assets and pipeline properties of the fund are distributed across the Yangtze River Delta, the Beijing-Tianjin-Hebei region and other key city-clusters, according to the Warburg Pincus-backed industrial developer.
Waiting for Clarity
Realfin previously argued that fundraising was likely to remain suppressed until investors believe that the end of a chain of interest rate hikes is in sight.
“Most investors appear to be favouring a slow-down in decision-making and execution until the dust settles on the impact of those rate hikes,” the report said.
The number of commercial real estate transactions involving a private fund or institutional investor fell by 42.1 percent year-on-year to 1,161 in the first quarter, according to Realfin data.
By value, transactions in the period were evenly spread across residential (19 percent), office (18 percent), industrial (18 percent) and retail (14 percent), with lesser activity in hotel (9 percent) and mixed-use (8 percent).
Despite an abundance of uncertainty and risk, investors seeking to increase or maintain allocations to real estate comfortably outnumbered those looking to retreat, Realfin said, noting that the latest average target allocation data showed an increase from 10.1 percent for real estate to 10.9 percent.