Capital raising activity reached a record high in 2021, with at least €254 billion (US$274 billion) raised globally for non-listed real estate investment, a 107% increase from the €123 billion raised in 2020, demonstrating an exceptional recovery following the height of the Covid-19 pandemic, according to a recent survey.

And the signs are that this upward trajectory will continue, with 76% of respondents to the Capital Raising Survey 2022, published by non-listed real estate associations ANREV, INREV and NCREIF, expecting an increase in capital raising activity over the next two years – although the timing of the survey, conducted between the end of January and early March of this year, makes it difficult to assess the extent to which participants took the invasion of Ukraine into account.  

Regional strategies

The capital raised for each of the regional strategies saw a significant uptick in 2021, reaching a record level for North America with a total of €90 billion – more than triple the €29 billion of 2020 and almost double the €51 billion raised in 2019. Similarly, new records were reached for Asia-Pacific and global strategies, with the former increasing by 61%, while nearly tripling for the latter, compared to the 2020 results.

In Europe, total capital raised for non-listed vehicles amounted to €73 billion, marking a significant increase from the €51 billion raised in 2020 – perhaps unsurprisingly given the period of economic and investment uncertainty caused by the pandemic. The latest result is on a par with the previous European strategies’ record set in 2019.

Non-listed funds dominant

With 56%, non-listed real estate funds attracted the highest share of the total capital raised in 2021, maintaining their position as the most popular route to invest in real estate globally. Compared with other regions, capital raised targeting Europe was more widely spread among non-listed vehicle types, albeit non-listed funds remain the biggest beneficiary with 45%.

Joint ventures and club deals reported the most notable gain in allocations for European strategies, doubling their share of capital raised from 5% in 2020 to 10% in 2021, and amounting to a record high of €6.3 billion.

Separate accounts investing directly into European real estate were the second-most preferred vehicle type (23%), while real estate debt vehicles continued to gain importance among investors, maintaining their position as the third-most attractive vehicle type for the second year in a row, with a total share of 19% in 2021.

Unlike the US where large open-end structures are common, the European non-listed debt market is dominated by smaller closed-end funds, in part explaining the dominance of local European capital, which accounted for around 90% of the total capital raised in 2021. This is expected to change, the survey reveals, as the market evolves, with growing evidence of cross-regional investors taking an interest in the segment.

Sector strategies 

For the first time since 2017, the share of capital raising activity for funds that follow a multi-country and multi-sector strategy declined, however, they still raised more than half (51%) of the total new capital targeting European strategies in 2021. In turn, funds that followed a multi-country and single-sector strategy increased their 2021 share of capital raised to 18%, up from 13% in 2020. 

Of those vehicles following European single-sector strategies, residential, and industrial and logistics sectors raised the most capital in 2021, with 12% and 11% respectively. The industrial and logistics sector saw the largest increase in capital raising activity – close to double the 6% reported in 2020, and significantly above its 10-year average of 7%.

Core strategies in demand

The majority of capital raised for European strategies was earmarked for vehicles with a low-risk strategy. Out of the €55.4 billion raised in total, 72% was destined for core equity or senior debt strategies. While out of the €43.7 billion raised for vehicles investing in equity, €30.8 billion targeted core strategies. Value-added equity strategies attracted €8.6 billion of capital in 2021, while opportunistic equity strategies bagged a total of €4.3 billion.

“The uptick in capital raising activity in 2021 reflects the pent-up demand accumulated during the most restrictive period of Covid-19 lockdowns and a surge in investor appetite for the asset class,” says Iryna Pylypchuk, director of research and market information, INREV. “These results indicate a positive outlook for the real estate investment industry, notwithstanding the challenges the investment managers have been facing in terms of capital deployment, with almost half of capital raised in 2021 yet to be invested. And the complex geopolitical, economic and inflationary outlook will put additional pressure on decision-making and deployment strategies in 2022.”