- Global investors taking ‘wait-and-see approach,’ Preqin says
- Slide in building valuations also hurts potential for returns
Private real estate fundraising plunged in the third quarter as higher interest rates cooled investor appetites for risk.
Around the world, $18.2 billion was raised by 61 funds in the three months through September, a 71% decline from the second quarter, when 117 funds raised $63.4 billion, according to a report by Preqin. It was the slowest rate of fund closures in the present cycle of interest-rate increases, the research firm said.
Property markets around the world are in turmoil as interest-rate hikes by central banks have increased the cost of borrowing. At the same time, valuations have dropped for some property types, decreasing the returns investors can expect — especially for offices, which have been battered by the rise of remote work.
“Investment opportunities that can offer a stable positive net income stream and a clear investment exit route are very scarce,” said Henry Lam, associate vice president of research insights at Preqin. “Market players tend to take a wait-and-see approach, until the future pathway of interest rates is more certain.”
North America-focused funds accounted for the largest share of global fundraising in the third quarter, yet their proportion declined to 70% from 81% in the previous three months, according to the report. The Asia-Pacific region’s share increased to 24%. Japan, where borrowing costs remained low, was particularly attractive to investors, Preqin said.
Funds focused on Europe and the rest of the world raised just 6% of the total capital in the third quarter.
The dollar value of global property transactions slipped to $26.9 billion in the third quarter from $31.9 billion in the three months through June, Preqin said. Office sales declined 20%. Industrial and residential buildings traded most actively, with deals falling only 3.2% and 6.3%, respectively.
Uncertainty over interest rates will continue to weigh on real estate fundraising and transactions, according to Preqin, though investors will seek out property types or markets that promise more-certain returns.
“In the short term, say the coming one or two quarters, investment sentiment for real estate will remain subdued,” Lam said. “And global fundraising and deal-making are likely to remain quiet.”
Written by: Alicia Clanton @Bloomberg.com
The post “Global Real Estate Fundraising Slumps 71% With Rate Risk” first appeared on Bloomberg.com
BullsNBears.com was founded to educate investors about the eight secular bear markets which have occurred in the US since 1802. The site publishes bear market investing recommendations, strategies and articles by its analysts and unaffiliated third-party and qualified expert contributors.
No Solicitation or Investment Advice: The material contained in this article or report is for informational purposes only and is not a solicitation for any action to be taken based upon such material. The material is not to be construed as an offer or a recommendation to buy or sell a security nor is it to be construed as investment advice. Additionally, the material accessible through this article or report does not constitute a representation that the investments or the investable markets described herein are suitable or appropriate for any person or entity.