European-focussed fundraising improved 'dramatically' in 2014, according to the 2015 Global Real Estate Report issued by fund data provider Preqin.

European-focussed fundraising improved 'dramatically' in 2014, according to the 2015 Global Real Estate Report issued by fund data provider Preqin.

Forty-one vehicles closed on €26.4 bn over the year, more than double the €11.6 bn raised in 2013 and eclipsing even the pre-2008 highs. The figure accounts for 39% of global capital raised in 2014, more than double the share (17%) in 2013.

'2014 was an excellent year for private equity real estate,' according to Preqin's CEO Mark O'Hare. Over the past three years, the asset class has delivered net returns of 16.7% per annum, he said, while assets under management have grown to an all-time high of $742 bn.

At $890 mln, the average size of European funds that closed in 2014 was also more than twice the size in 2013 when average funds totalled $428 mln. The sharp rise was fuelled by mega European funds offered by the likes of US private equity giant Blackstone and Kildare Partners.

Blackstone closed the largest solely Europe-focused fund of all time in March 2014 and subsequently raised an additional €1.5 bn after re-opening the fund in Q4 2014. Meanwhile Lone Star funds will allocate half the $7.2 bn secured for its Lone Star Fund IX to European opportunities.

According to a recent global capital flows report published by Colliers International entitled 'How long will this property bull market last?', Blackstone has raised the largest amount of capital (£53 bn or €73 bn) since the last peak, followed by other North American investment groups such as Lone Star ($39 bn or €36.5 bn), Fortress ($16 bn) and Brookfield ($13 bn).

There was a sizeable increase in the rate of fundraising for European debt funds in 2013 and demand for exposure to the strategy remained strong in 2014, Preqin said. Over the year, nine primarily debt-focused funds closed with a combined €5.8 bn.

There was also a distinct move up the risk/return curve in 2014, with €17.6 bn raised by value-added, distressed and opportunistic funds, accounting for 67% of all European capital raise.

In contrast, core and core-plus funds, which made up 23% of European capital raised in 2013 and 32% in 2012, raised €3 bn in 2014, 11% of overall European fundraising.

'The excellent financial performance of private equity real estate funds over the past three years has resulted in investors being more satisfied than at any point in the recent past,' Preqin's O'Hare said. '33% of investors feel that returns have exceeded their expectations over the past year - up from 3% in December 2012 - while only 7% feel they have disappointed - down from 47% in 2012. Most investors are planning to commit more capital to new funds in 2015 than in 2014, and also to increase their target allocations for the long term.'

He warned, however that although investor appetite is high, competition is increasing. The number of general partners seeking to raise new funds globally came to 450 at the latest count, he added. 'This makes for a formidably competitive environment in which to seek capital, and only those managers with a clear and compelling proposition will succeed.'

He added that alternative routes into real estate such as co-investments, direct investments and separate accounts are increasingly challenging the pooled fund model. 'This trend will continue and is likely to put continued long-term pressure on fees and terms.'