Global real estate fundraising fell off a cliff in 2023, a year characterised by major hikes in global interest rates as central banks sought to wrestle inflation under control. Last year the Federal Reserve and European Central Bank began to bring rates back down, but this was not enough to revive capital raising.
Fundraising more than halved in 2023, falling to €117bn from €246bn in 2022, according to joint global figures from regional real estate associations INREV, ANREV and NCREIF. This year’s figures, announced at INREV’s annual conference in Berlin in April, showed that capital raised had remained flat in 2024 at €118bn.
Lauren Mills reported from the conference, where the case for an upbeat outlook for European real estate was made – by both Seema Shah, global strategist at Principal Asset Management, who talked of the potential for an economic “renaissance” in the region, and Kathleen McCarthy, global co-head of real estate at Blackstone, who explained how Europe continued to be of particular interest to the global investment behemoth.
But outside the auditorium, anecdotal evidence points to rising apprehension among the real estate investment community about the near-term outlook for the asset class.
In its capital raising report, INREV highlights the growing prominence of relatively newer investors, such as family offices, as the traditional bedrock of the asset class – pension funds and insurers – have taken a step back. Iryna Pylypchuk, director of research and market information at INREV, said the results highlighted “greater fragmentation of the investor landscape”. However, she ventured: “Earlier overallocation, coupled with turbulence in wider financial markets, may explain the current move by pension funds and insurance companies, but these investors are likely just biding their time.”
Will 2025 see a significant return of pension funds committing and deploying capital into real estate? There is a danger it becomes a perennial question; a year ago, this column effectively asked the same thing.
Unfortunately, this year’s IPE Real Assets survey of institutional real estate investors does not provide any concrete proof of a major revival of real estate investment in 2025. Investors’ exposure to real estate continues to be very close to their allocations, leaving little room for substantial new levels of investment. According to this year’s sample, the average target allocation was 13.3% (last year’s was 13.5%), and investors are, on average, just below this target at 12.9% (13.2% in 2024).
Furthermore, more than a quarter of investors (27.8%) reduced their target allocations over the past 12 months, up from 13.6% the year before, while only 50% of investors kept their targets stable versus 75% previously. That said, 22.2% actually increased their targets, up from 11.4% in 2024.
More than a third of investors said high interest rates had restricted or led to a reduction in their real estate allocations, although the majority (60%) said it had had no effect. And a small proportion (5.7%) said recent falls in rates had led to a higher allocation, or expectation of a higher allocation in the future. We will have to wait to see whether this proportion rises in next year’s survey, assuming interest rates continue to fall.
The survey also shows that industrial/logistics and residential continue to be the most favoured sectors among real estate investors, followed by student housing. Next is data centres, which has risen in interest over the past 12 months, from 38.1% to 57.1%.
Such is the positive outlook for data centres – uncertainty around the future demand from AI notwithstanding – that this sector seems to be keenly targeted by both real estate and infrastructure investors and fund managers.
This market takes up a large portion of our special report on artificial intelligence (AI). “I’ve been investing in data-centre real estate for about 20 years and have never seen anything remotely close to the demand we are seeing today,” says Ryan Sullivan, executive vice-president and national data-centre group leader at Lincoln Property Company. “From a data centre-demand perspective, over the last 12 to 18 months, the market has never been hotter.”
But this is not the only reason that real estate investors should be paying attention to AI. There are also the direct implications it has for the asset class. Niko Szumilo, associate professor in economics and finance of the built environment, University College London, the Bartlett School of Sustainable Construction, argues that both real estate investment managers and investors are not catching up fast enough.
“Everybody needs to know what AI is, what it does, what the latest tools are, and how to deploy AI effectively. Otherwise, we will be stuck in the learning experience for the next 10 years,” he says.
The same applies to infrastructure. “Market data shows that AI-driven automation can improve infrastructure efficiency by over 50%,” says Alexandre Grellier, CEO and co-founder of Drooms. “The technology exists, and the benefits are clear. The only missing piece? Adoption.”
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