NEW YORK CITY—Fund managers in the private equity real estate space are feeling competitive pressure for assets and investor capital, says Preqin, headquartered here and in London. More than 70% of real estate firms surveyed by Preqin at the end of last year felt that competition for both investment opportunities and sources of capital had increased over the preceding 12 months.

In a way, the PE real estate sector is a victim of its own success: the industry now manages $742 billion in assets, an all-time high, and generated annualized returns of 16.7% over the past three years. There's also about $217 billion worth of dry powder globally, which fund managers naturally feel obligated to deploy.

That has intensified the competitive atmosphere, such that 75% of fund managers feel there is more competition for core real estate assets than there was year ago, and a similar percentage feel the same about value added and opportunistic assets.

Furthermore, Preqin says that aggressive pricing and a competitive landscape now make it harder for managers to source transactions. Two-thirds of the fund managers Preqin surveyed this past November said it's now more challenging to find attractive investment opportunities than it was 12 months ago.

The fundraising market is also becoming increasingly competitive, says Preqin. One-hundred-and-eighty-two private real estate funds reached a final close in 2014, 59 fewer than in 2013 and 79 fewer than in 2012. Of the 119 managers that Preqin surveyed in November, 72% said they have seen an increase in competition for investor capital compared to 12 months ago.

Even so, while some industry players may have concerns about whether there is enough product for all this capital to be invested in, Preqin reports that fund managers largely believe now is still a good time to invest. More than two-thirds of those surveyed said they expect to invest more capital in 2015 than they did last year.

“There are many challenges currently facing both fund managers and investors active in the private real estate space,” comments Andrew Moylan, head of real assets products at Preqin. “For fund managers, high pricing makes finding attractive investment opportunities difficult, while the fundraising market is more competitive than ever. Institutional investors are receiving high levels of distributions from their existing commitments and strong returns on average from their real estate portfolios, but they must find the best opportunities to put this capital back to work.”

Nonetheless, Moylan adds, “there is a great deal of institutional confidence in the real estate asset class and its ability to meet portfolio objectives. Fund managers are confident in their ability to invest the high levels of dry powder they have at their disposal, with the majority looking to invest greater levels of capital in 2015.

Fundraising will remain extremely difficult over the coming year, but for those managers that can differentiate themselves from the rest, there is certainly the investor appetite for them to be very successful.”