GLOBAL - Almost half of investors who have invested in private equity-style real estate funds in the past will not be allocating new capital to the sector in 2011, according to data analysts Preqin.
A new report, the Preqin Investor Outlook: Real Estate, showed that only 45 of 100 leading investors in private real estate funds would make new commitments over the next 12 months.
The largest share of respondents (49%) said they would not be making any new commitments this year, while the rest (6%) are undecided.
The picture among European investors is particularly bleak for fund managers looking to raise capital, with most of the interest in new products coming from North American investors.
Only 35% of European investors surveyed said they would make new commitments in the next 12 months, compared with 60% for North American investors.
This trend may partly to do with more (71%) North American investors being below their target allocations to real estate compared with their European counterparts (59%).
The largest investors were also more likely to invest in 2011 - 69% of those with assets worth more than $10bn (€7.38bn); 40% of those with $1bn-10bn of assets; and 33% of those with assets of less than $1bn.
The good news for managers is that 66% of those intending to commit to new funds in 2011 expect to invest more than they did in 2010.
Only 37% of respondents made investments in 2010, 6 percentage points fewer than the proportion that invested in 2009, also a challenging year for the industry.
The biggest concern for investors was the general state of the market, with 28% stating that this was impacting on their investment plans, while 26% were worried about liquidity within the real estate market and 21% were concerned about current real estate valuations.
Misalignment of interests between fund managers and investors, the level of leverage used and lack of transparency were also cited as important concerns.
Andrew Moylan, manager for real estate data at Preqin, said: "With market conditions remaining unstable, investors are still very cautious about committing to real estate funds.
"If managers are to be successful, they will have to be very clear about how they intend to overcome the problems currently facing the market.
"There are some encouraging signs, with those intending to invest this year planning on committing more than they did in 2010, and the larger, North American investors are looking to start investing during the first half of the year.
"However, there are currently 425 funds on the road seeking an aggregate $139bn in new capital."
Moylan said the report findings suggested there would not be enough capital available to satisfy the ambitions of all these managers.
"As a result, further consolidation within the industry is likely in 2011," he said.