Real estate secondary trading volumes reached a record total of $2.43 bn (€2.3 bn) across CBRE’s global network in 2016, according to the latest analysis from the global real estate advisor.
A total of 187 fund interests were transferred over the course of the year, with transactions occurring in each of CBRE's three core global geographies, EMEA, APAC and the Americas, the advisor said. Whether measuring volume, trades or market participants, CBRE’s secondary market activity was up 20% year-on- year.
'Secondary trades in real estate funds are hard to track, particularly on a global scale, due to sheer volume of capital deployed in real estate funds. Furthermore, the definition of what constitutes a secondary is far from consistent,' commented Paul Robinson, executive director, CBRE Capital Advisors. 'Consequently, CBRE only ever publishes its own secondary trading volumes. However, these results provide an accurate representation of how the market has performed as a whole. We have seen significant levels of growth over the past year and the principal drivers behind this growth look set to continue over the coming year.'
Secondary trading participation increasing
According to CBRE, the growth witnessed in 2016 was driven by a number of factors, including an increasing familiarity with secondary trading, whether in real estate or more generic private equity funds. 'Participation is increasing, and for many the acquisition/disposition of risk through the secondary market is now the preferred route to liquidity,' the analysis reported. CBRE also noted that investors are more frequently opting to determine for themselves when they want capital deployed and when they want it returned. Via secondary market trading, they can opt for 'certainty over time and price', the research said.
The report also found that as markets mature and dedicated brokerage services evolve, the ability to perform size increases and execution becomes more cost efficient. According to CBRE, the majority of growth witnessed this year came from individual fund trades of over $50 mln, accounting for approximately 30% of total volume. 'The industry is now far more transparent than it was 10 years ago, meaning an investor can be more confident that they are executing 'at market', which in itself stimulates activity', the analysis noted.
Price variations evident
Price was varied over the course of the year, with CBRE trades executed between a 25% discount and a 6.5% premium to NAV, depending on the property markets to which the fund was exposed, the capital structure of the fund, and the proximity of return on both income and capital. However, highest pricing was generally secured in alternative sectors such as residential and student housing, as well as industrial and logistics. These were perceived by investors as defensive strategies when compared to the more vulnerable mainstream commercial market. The core European funds also performed well.
Weaker pricing was evident in more traditional retail and London office strategies, the report concluded.
