The global private equity real estate (PERE) industry saw 887 deals recorded in the second quarter of 2017 worth a combined $63 bn (€55 bn), a 15% increase in deal flow and a 36% increase in deal value compared to Q1 2017, according to new research from Preqin.
The alternative investment data specialist said it expected these figures to rise by up to 10% as more information becomes available.
Larger assets drove activity, accounting for almost one in five transactions in Q2, and more than half of total deal value.
'The private equity real estate deal market saw a slow start to 2017, with deal volume and value both falling sharply from levels seen in 2016,' commented Andrew Moylan, head of real estate products. 'Q2, however, has seen the industry rebound, with both volume and value climbing.'
He added: 'Although the number of deals does not match activity seen last year, aggregate value reached the highest quarterly total recorded since Q4 2015. Considering that dry powder for the industry is approaching a quarter of a trillion dollars, it is encouraging to see fund managers putting more capital to work.'
According to the data, investment capital available to PERE fund managers has continued to climb in Q2, reaching $246 bn (€214 bn) as of the end of June.
Larger deal trend
Deals worth $50 mln (€44 mln) or less accounted for 52% of deal volume, the lowest quarterly proportion tracked by Preqin. Meanwhile, office assets represented 32% of deals and 34% of deal value, the largest proportions.
Land assets account for just 5% of deal flow, but almost a fifth (19%) of total value, the second-highest proportion. The majority (55%) of deal value was for assets totalling 500,000 ft2 or more, and these assets represent 19% of the number of transactions. This is up sharply from the 13% of the number of deals they accounted for in Q4 2016.
16% of Q2 deals were portfolio transactions, in line with previous quarters. However, the proportional value of these deals is accelerating, from 28% in Q2 2016 to 34% in Q4 and a high of 44% in Q2 2017.
The largest PERE deal recorded in Q2 for a single asset was the HKD 8.3bn (€900 mln) sale of the Kam Sheung Road Station Site (pictured) in Hong Kong. The largest portfolio deal of the quarter was the CNY 55.1 bn (€7.1 bn) acquisition of a number of development sites in Guangzhou, China.
'Over the longer term, it is notable that an increasing proportion of activity is being concentrated around fewer, larger transactions,' noted Moylan. 'Portfolio deals have been a relatively static portion of the market in terms of the number of deals over recent quarters, but account for an accelerating proportion of deal value.
'Similarly, the largest class of assets is growing as a share of deal activity, indicating that more fund managers are looking to acquire larger assets or bundles of assets in an effort to effectively deploy their available capital into attractive opportunities,' Moylan concluded.
