PRIVATE real estate fundraising plunged in the third quarter as higher interest rates cooled investor appetites for risk.
Around the world, US$18.2 billion was raised by 61 funds in the three months till September, a 71 per cent decline from the second quarter, when 117 funds raised US$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 per cent from 81 per cent in the previous three months, according to the report. The Asia-Pacific region’s share increased to 24 per cent. 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 per cent of the total capital in the third quarter.
The US dollar value of global property transactions slipped to US$26.9 billion in the third quarter from US$31.9 billion in the three months till June, Preqin said. Office sales declined 20 per cent. Industrial and residential buildings traded most actively, with deals falling only 3.2 per cent and 6.3 per cent, 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.”
Source : TheBusinessTimes