Private real estate fundraising plunged in the third quarter as higher interest rates cooled investor appetites for risk.
Around the world, $18.2 billion was raised by 61 funds in the three months through September, a 71% decline from the second quarter, when 117 funds raised $63.4 billion, according to a report by Preqin. It was the slowest rate of fund closures in the present cycle of interest-rate increases, the research firm said.
Property markets around the world are in turmoil as interest-rate hikes by central banks have increased the cost of borrowing. At the same time, valuations have dropped for some property types, decreasing the returns investors can expect — especially for offices, which have been battered by the rise of remote work.
“Investment opportunities that can offer a stable positive net income stream and a clear investment exit route are very scarce,” said Henry Lam, associate vice president of research insights at Preqin. “Market players tend to take a wait-and-see approach until the future pathway of interest rates is more certain.”
North America-focused funds accounted for the largest share of global fundraising in the third quarter, yet their proportion declined to 70% from 81% in the previous three months, according to the report. The Asia-Pacific region’s share increased to 24%. Japan, where borrowing costs remained low, was particularly attractive to investors, Preqin said.
