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Real Estate – Rising prices and competition for assets

Preqin launched its 2015 Preqin Global Alternatives Reports last week, revealing significant growth in assets held by private equity, hedge fund, private debt, real estate and infrastructure fund managers. Total industry assets now stand at USD6.91tn*, up from USD6.22tn as of this point last year.

Real estate as an asset class has been an important contributor to this growth, as improving valuations of unrealised assets have seen the value of private real estate industry assets rise by USD85bn over the 12 months to June 2014. However, rising prices have also led to tougher competition in the marketplace.

The 2015 Preqin Global Real Estate Report provides a comprehensive review of the industry along with contributions from respected industry figures and the outlook for the coming year. Some of the key findings in the report are as follows:

• Private real estate industry assets stand at USD742bn as of June 2014, up from USD657bn as of June 2013, driven predominantly by improving valuations of unrealised assets.

• Higher asset valuations are affecting new investment activity, with 66% of fund managers saying it is harder to find attractive investment opportunities at suitable prices in the current market compared to 12 months ago.

• Nevertheless, performance of the real estate asset class has been strong, with annualised returns of private real estate funds reaching 16.7% over the past three years.

The excellent financial performance of private equity real estate funds over the past three years has resulted in investors being more satisfied than at any point in the recent past; one-third of investors feel that returns have exceeded their expectations over the past year. The future for private equity real estate is undoubtedly positive, but the competitive screw is continually being turned tighter as LPs seek the best opportunities and the best structures and terms for their investments. 

To find out more about the 2015 Preqin Global Alternatives Reports, including full contents and sample pages, visit our website.

*The USD6.91tn of industry assets is made up of USD3.02tn in hedge fund assets, USD3.79tn in private equity assets (which includes USD742bn in real estate assets, USD296bn in infrastructure assets and USD387bn in non-direct lending private debt assets), and USD97bn in direct lending assets.

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