EUROPE – A near fatal crisis for many real estate fund managers at the beginning of 2013 has been avoided, but pressures remain and will lead to significant consolidation in the sector, according to PwC.

In an update to its 2010 paper, 'Ammonities, extinction events and the real estate funds industry', the consultancy said the risk of fund managers being endangered by new regulations coinciding early next year had abated.

Delays to new rules now meant more gradual change, according to the updated version.

John Forbes, PwC partner and author of the report, said: “Whilst the risk of a catastrophic outcome on 1 January 2013 has dissipated, for many real estate managers the prolonged period of stress will prove too much, and we anticipate a period of significant consolidation in the real estate investment management industry over the next two years.”

Forbes told IP Real Estate that the delays in the implementation of regulation affecting the industry were continuing to happen. “Even in the two weeks since the paper was written, there have been delays,” he said, noting that the European Parliament has rescheduled the plenary vote of the Solvency II Omnibus II Directive to 11 March 2013 from 20 November 2012.

Although such delays would give investment managers more time to adjust, they would also prolong the period of uncertainty in the market, potentially prompting investors to sit on their hands for longer, Forbes said.

When the original version of the paper was published two years ago, Forbes said the two-year period of pressure already experienced at that point had been expected to last until well into 2013.

In January of that year, several pieces of new regulation were due to be introduced, and this event had the potential to take many already stressed businesses to the brink, the original paper had found.

“The intervening delays in the implementation of the various regulations mean that they are no longer running to the same timetable,” Forbes said. “The real estate industry therefore faces a prolonged period of pressure stretching into 2016, with the stresses gradually rising as the various regulatory changes come into effect."

Although real estate fund managers have potential difficulties to navigate, there will be opportunities for those firms able to adapt and innovate, he said.

“At one level, merely surviving is a business opportunity,” he said. “Those that do will find themselves in a reduced peer group.”

Forbes said it was important for fund managers to realise that rather than having gone away, regulatory challenges had simply been delayed slightly. Those fund managers failing to make necessary changes would face a difficult two to three years.

The start date for compliance with the Alternative Investment Fund Managers’ Directive (AIFMD), for example, is July 2014, he said, although it may apply in some circumstances from July 2013.

“This is a short lead-in time and real estate managers who are not already preparing themselves are at risk of being left behind,” Forbes said.