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Capital raised for non-listed real estate hit record low in 2023

24 April 2024, Berlin – Fund managers raised a minimum of just €117 billion for non-listed real estate globally in 2023, according to the Capital Raising Survey 2024, published today by ANREV, INREV and NCREIF.

This is the lowest volume of capital raised since 2015, with activity falling across all global regions. It represents a decline of more than 50% from the minimum of €246 billion raised in 2022. This lacklustre performance was most likely driven by a combination of low transaction volumes and negative returns, set against a backdrop of macroeconomic headwinds and geopolitical uncertainty.

A quarter of the 83 managers who contributed to the survey did not raise any capital last year, citing a lack of suitable products as the main reason. But the fact that 86% of the capital raised in 2023 is yet to be invested undoubtedly affected their ability and willingness to raise more equity.

Sources of capital

European investors returned as the leading source of capital for real estate globally, accounting for 38% of the overall equity raised in 2023 but still well below their long-term average of 44%. Asia Pacific investors were close behind with 34% of the total capital raised globally in 2023, having been the primary source of capital in 2022. North American investors accounted for 28%.

European investors continued to dominate their domestic region contributing 79% of the capital raised for European strategies, followed by investors from Asia Pacific at 14% – down from a high of 21% in 2022. Contributions to European strategies from North American investors fell to 6% in 2023.

Focusing on global strategies only, investors from the Asia Pacific region emerged as the leading source of capital representing 43% of the total. European investors occupied the second slot at 31%, with investors from North America contributing 26% – a 32% drop compared with 2022.

Balance of power shifts among investors

The survey reveals a subtle but significant shift in the balance of power among investor types. Taken together, sovereign wealth funds and government institutions – which represent the bulk of Asia Pacific investors – accounted for almost 20% of total capital raised globally in 2023. And while, collectively, pension funds and insurance companies accounted for 46% of total capital raised, this still reflects a third consecutive year of decline for these investor groups and a second consecutive year when their combined market share of capital raising activity is below 50%.

Government institutions accounted for 15% of capital raised for European strategies in 2023 – a notable increase on their 3% long-term average. However, pension funds remained the dominant single investor type accounting for 29% of capital raised for European strategies last year.

Non-listed funds and debt attract capital 

At 39%, non-listed funds attracted the lion’s share of capital raised globally in 2023, followed by non-listed debt products with 24%. This is one of the highest shares for debt products since the inception of the survey, reflecting investors’ continued appetite for the attractive risk-return profile of this slice of the non-listed asset class. Conversely, separate accounts investing directly fell to 18% – their lowest share since 2020. European investors showed a particularly strong preference for non-listed debt products during 2023, representing almost one-third of the capital invested.

Within European strategies, non-listed debt vehicles were particularly favoured in relation to alternative sectors. They accounted for 81% of the capital destined for the European residential sector in 2023.

Iryna Pylypchuk, Director of Research and Market Information at INREV, said: “The drop in capital raised in 2023 was undeniably dramatic, but will likely come as little surprise to most market participants. These results are a direct consequence of weak underlying markets and a ‘wait and see’ attitude prevalent among investors, following six consecutive quarters of negative performance and the ongoing pricing discovery.

“The good news is that the substantial amount of dry powder accumulated over the last few years should be ready for deployment the minute the first interest rate cuts are announced, and marker participants feel the end of the cycle is nearing. Consequently, there’s potential for the capital raising environment to return to a healthier state relatively quickly. However, it’s unlikely to reach the dizzying heights of the circa €250 billion levels witnessed in 2021 and 2022, anytime soon.”