European real estate funds are expected to offload €11bn over the next two years, selling €6.4bn in 2017 alone.
According to trade body INREV, 72 non-listed funds are scheduled to terminate over the next two years, implying that assets with a net asset value (NAV) of €11bn will return to the market.
The latest annual fund terminations study found that 29 funds are terminating in each of 2016 and 2017, with a further 14 scheduled for 2018.
The figures are down from the 2015 total of 36 funds, suggesting that terminations have peaked following a bumper round of launches between 2005 and 2007.
Terminations in 2017 make up more than half the total NAV being put back into the market over the period with a total value of €6.4bn as a number of larger-than-average funds come to the end of their lifespans.
Liquidation was the most preferred form of termination for a third year running, chosen by 72% of the respondents who have made their decisions, followed by rollover (17%) and extension (11%).
Among those that had decided on the form of termination, none had chosen alternatives options, such as public listings, whole fund sales and mergers.
The data also suggests that performance can affect the decision to extend or liquidate. INREV said there was little evidence of this between 2007 and 2009, but between 2011 and 2015 the gap in average annual returns has widened.
Last year the gap was 14.2%, with extending funds delivering an average return of 8% contrasting sharply with the -6.2% average for liquidating funds.
Commenting on the findings, Henri Vuong, INREV’s director of research and market information, said: “We are seeing an increasing amount of variance in the length of life of closed-end funds, from genuine fixed-term funds at one end to extendible funds that start to resemble open-end funds at the other.
“This suggests that fund managers are taking a more flexible approach to the termination of their funds.”
Vuong added: “The volume of terminations will significantly exceed the number of new fund launches over the next few years.
“While deployment remains a challenge, this capital is likely to be redeployed in real estate fairly quickly, and there is still plenty of investor appetite to reinvest in funds.”
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