Appetite of Real Estate Funds Still High

Despite uncertain economic conditions globally, investors’ interest in the real estate market has not diminished. About 48 percent of investors plan to commit to the asset class in the next 12 months, a survey conducted by Preqin stated.

The survey showed that 70 percent of investors with $10 billion or more are likely to invest in the next 12 months, compared to only 26 percent of investors with less than $1 billion in assets under management. This is an increase from 36 percent at the beginning of January 2012, the report said.

 “The results of Preqin’s latest study of institutional investors do suggest an increase in appetite for private real estate funds, with 48 percent of respondents planning to make new commitments in the next 12 months,” said Andrew Moylan, Manager, Real Estate Data, Preqin, in a statement.

According to the report, investors’ appetite for real estate funds also depended on geographies. A majority of investors plan to focus on their own domestic regions or markets closer to home. “While many investors have always focused on investing closer to home, this also reflects how selective investors are being when making new commitments, with many focusing on the specific markets where they believe the best opportunities lie,” the report said.

Interestingly, Asia and the rest-of-the world are going to see increased investment activities compared to North America and Europe. The report predicts that 72 percent of Asia and the rest-of-the-world are likely to commit to private real estate funds in the next 12 months than 47 percent of North Americans and 32 percent of Europeans.

The Euro crisis and volatility in the market had cautioned European investors, with only 27 percent of European investors making private real estate fund commitments in the past year. “This shows investors’ lack of confidence in a market affected by the on-going volatility,” the report stated.

Unstable economic condition is also one of the reasons why 52 percent of investors are being cautious in spending their money in the coming 12 months. The real estate industry was deeply affected by the economic downturn and this has put several investors in a wait and watch mode, believes Moylan. “With 52% of investors not planning investments or adopting a wait-and-see policy, it is clear that fundraising for private real estate funds is likely to remain very challenging in the coming months,” Moylan said.