LONDON—Private real estate fundraising has grown 134% since 2009, reaching US$120 bilion in 2016. However, Preqin says, the number of new firms established each year has decreased 126 new firms in 2006 to just 37 last year, and 87% of fund managers surveyed by Preqin this past June expect further consolidation in the next few years.

“Although the private real estate market has seen a reduced pace of growth in recent years, investor appetite has remained strong, and fund managers have been able to maintain high fundraising levels,” says Oliver Senchal, head of real estate products at Preqin. “Fund managers therefore expect the industry to grow by 2020 and similarly expect to see an influx to their ranks by that time.

“However, fund managers also expect increased consolidation in the industry, which could lead to a two-tiered fundraising market in which the established and larger fund managers are able to fundraise quickly and successfully, while the majority of fund managers compete for the remainder of investor capital,” he continues. Recent examples include the 2014 merger of TIAA-CREF and Henderson Global Investors to form TH Real Estate, one of the largest real estate firms in the world, with approximately US$99 billion in assets under management.

Additionally, says Senchal, “as investor appetite in the industry grows, fund managers expect more capital to come from family offices, likely as a result of the large swathes of untapped private wealth in emerging economies such as China and India.” Fifty-five percent of those surveyed have his expectation, Preqin says.

Preqin says that retail investors are also expected to be a larger source of capital to the industry by 2020, given the benefits that real estate investment can provide in producing relatively stable income streams and portfolio diversification. They're likely to favor open-ended fund structures due to their liquidity, along with the benefit of seeing capital returned to them on a more regular basis.

Although fewer fund managers have been entering the scene, the largest proportion (42%) of fund managers surveyed by Preqin believe there will be more active general partners in the industry by 2020. “The prediction of sustained growth may come from an expectation of continued investor appetite for real estate, and reinforces the challenge faced by GPs in securing investor capital as new players continue to emerge,” according to Preqin.

Similarly, 62% of fund managers expect to deploy more capital to real estate in the next 12 months, Preqin says, Moreover, “a record amount of dry powder is available to pursue these investment opportunities, and growth within the private real estate market looks set to continue.”

Instant Insights /

Private Real Estate Could See 'Two-Tiered' Fund Market

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