European Demand Helps Record Year for Unlisted Property

$50 billion in fresh capital has come into the private real estate sector this year, even as the asset class faces fiercer competition and rising prices.

Private real estate assets have grown 7.2% in 2014 to a record high of $742 billion, according to data from Preqin.

The alternatives data specialist reported that closed-end private real estate funds saw their combined assets grow $50 billion during 2014 to the end of November.

Growth has been driven by demand for European assets, Preqin said, and the region is still attracting interest, as 36% of investors questioned by the data provider said they were targeting European real estate in the next 12 months.

It cited Blackstone’s €7.2 billion ($8.9 billion) Real Estate Partners Europe IV as an example of the capital flooding in to European property: the fund is the largest to close in 2014 so far. Capital raising for European funds increased by 153% compared to the January to November period in 2013, while North American funds have raised 27% less this year than last.

“This increase in private real estate fund managers’ portfolios can be attributed to the improving real estate valuations and increased investment activity by these firms,” said Andrew Moylan, head of real assets products at Preqin.

He added that the net asset value of portfolios had increased every quarter for the past three years, resulting in strong performance and a large pool of cash for future investments. Funds currently hold roughly $175 billion in “dry powder”, according to Preqin.

The data provider has previously warned about fierce competition for assets in the private real estate sector, as fewer managers were operating in the asset class with larger pools of capital being raised.

A number of institutional investors are targeting unlisted real estate next year, including the $89 billion Oregon State Treasury fund, which has committed $1.1 billion to invest in private real estate funds in the next 12 months. In the UK, Falkirk Council Pension Fund and insurer Catlin Group are both expected to make significant commitments to the asset class, while in the Netherlands the €23.4 billion ING Pension Fund is seeking to switch listed property for unlisted.