The number of private real estate funds closed in the past quarter hit their lowest level in more than seven years, according to Preqin’s latest fundraising update.
Globally, 45 closed-end vehicles closed in Q2, down from 64 in the previous quarter and 81 in the same period last year.
According to the report, 48% of all vehicles that closed in the first half of 2017 failed to hit their targets – the highest proportion in five years.
However, the industry raised $29bn (£22.3bn) in investor commitments, surpassing the $22bn raised in the first quarter. This means the fall in the number of funds is bigger than the fall in the capital raised and the average size of funds is rising.
In the first half of 2012, 145 closed-end funds raised $35bn, or an average of $241m per fund. That has nearly doubled to $468m in the first half of this year, with $51bn raised among 109 funds.
Preqin said this reflected expectations in the industry for further consolidation in the coming three years.
Andrew Moylan, head of real estate products at Preqin, said: “During a period in which other asset classes are seeing fundraising records repeatedly broken, real estate fund managers and investors seem to be taking a less bullish attitude, and fundraising has remained broadly level over the past several quarters.”
Across all industries, private closed-end funds raised 81% more in the first half of 2017 than in the same period five years ago. The rise in real estate was slightly more muted at a 47% rise.
While the aggregate capital raised in the first half has grown every year since 2012 among closed-end funds in general, it fell by 18% between 2016 and 2017 in real estate after four consecutive years of growth.
Even the fewer but bigger funds trend has been more stark in the wider market, more than doubling from an average of $289m per fund in H1 2012 to $578m in H1 2017.
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