Private real estate fundraising looks to be on the decline
based on data from the first half of 2022, which is a surprising
development given investors’ tendency to gravitate toward the
asset class during inflationary times. Only 123 funds were raised
in the first half of the year compared to 230 in H2 2021. While our
data collection efforts typically capture more funds over time,
larger funds tend to be recorded first, so capital raised may not
increase substantially when all is said and done. With just $63.2
billion raised in H1 2022 compared to $104.0 billion in H2 2021,
there is a good chance that we will not see real estate fundraising
climb as many had expected for 2022 as a whole.
A few macroeconomic factors are currently top of mind for real
estate investors. With a recession and/or real estate market
correction potentially on the horizon and the bid-ask spread
between buyers and sellers reportedly growing, some investors
may be waiting on a reset in the economic cycle before allocating.
In addition, while real estate is broadly considered an inflation
hedge, climbing interest rates and high inflation are more harmful
to some real estate strategies and sectors compared to others, so
investors must be selective to increase their chances of achieving
attractive returns in the current environment.
Private real estate’s one-year horizon IRR of 24.8% through the
end of 2021 was its best performance in a decade and not far
below the asset class’ highest return of 25.4% in the year through
Q1 2011. Quarterly IRR figures for Q4 2021 were similarly robust
but preliminary numbers from Q1 2022 indicate a potential
shift back to normal for returns. This is supported by REIT
performance, which began a sustained decline across sectors in
Q1 2022 and through the end of Q2. Even if not record breaking,
the outlook is still favorable for performance through the end of
the year, especially compared to other asset classes.
