Capital-raising activity hit eight-year low in 2023

Last year saw the lowest volume of capital raised since 2015 across all global regions, according to ANREV, INREV and NCREIF.   The organisations’ Capital Raising Survey has shown that fund managers raised €117bn (£100.5bn) for non-listed real estate globally in 2023, the lowest volume of capital raised since 2015. It represents a decline of more than 50% from the €246bn raised in 2022.  The move was driven by a combination of low transaction volumes and negative returns, set against a backdrop of macroeconomic headwinds and geopolitical uncertainty. Iryna Pylypchuk, director of research and market information at INREV, said: “The drop in capital raised in 2023 was undeniably dramatic, but is likely to 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 survey found that European investors remained the most active across the real estate market globally, accounting for 38% of the overall equity raised in 2023 but still below their long-term average of 44%. They were followed by Asia-Pacific investors, responsible for 34% of the total capital raised globally last year, and North American investors, accounting for 28%.  European investors showed a particularly strong preference for non-listed debt products during 2023, representing almost one-third of the capital invested.  Non-listed funds have also attracted the greatest share of capital raised globally in 2023, representing 39%.  This reflects investors’ continued appetite for the attractive risk-return profile of this slice of the non-listed asset class.  As such, direct investment fell to 18%, its lowest share since 2020.  Elsewhere, the balance of investor types has continued to shift year-on-year. Pension funds and insurance companies remained the dominant investor type, accounting for 46% of total capital raised in 2023, but their contribution has declined for a third consecutive year.  Meanwhile, sovereign wealth funds and government institutions took a greater share of capital raised globally, representing almost 20% in 2023. Pylypchuk said: “The good news is that the substantial amount of dry powder accumulated over the past few years should be ready for deployment the minute the first interest rate cuts are announced and market participants feel the end of the cycle is nearing. Consequently, there is potential for the capital-raising environment to return to a healthier state relatively quickly.  “However, it is unlikely to reach the dizzying heights of the €250bn levels witnessed in 2021 and 2022 anytime soon.” Photo © Gerd Altmann/Pixabay