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Sovereign wealth funds investing in uk real estate
Chinese investors were big buyers of trophy assets in previous years, helping to shore up asset values. The Chinese government tightened capital controls on foreign property purchases in , leading to a slump in outflows and anxiety over how the retreat of Chinese investors will affect real estate prices.
A series of tax changes introduced from and promises of more taxes for overseas buyers helped end a period of breakneck growth. These changes included an end to tax relief for foreign buyers and changes to stamp duty with higher taxes on second homes. However, the changes have hammered the entire property market. However, the trophy assets that were in vogue in the pre-Brexit real estate surge will not necessarily be the prime target.
Multi-use developments and commercial real estate, which have attracted the big Canadian public pension funds, are likely to represent the best bet for asset value growth. The impact of coworking on the London leasing market has been significant. WeWork is now the largest private office tenant which is remarkable considering it is only 8 years old. Demand for coworking spaces is strong among smaller companies and start-ups.
However, the supply of suitable and available buildings in popular locations is relatively tight. Age-Targeted Living We are already seeing increased specialization of housing, from student to retirement, via co-living and build-to-rent. It is expected that these trends will become more prevalent as developers target specific age groups by catering more closely to their needs and aspirations. This will be especially true when it comes to older people. It is well understood that many of the family houses built over the last century are not designed for older people who might need additional support.
A rise in institutional investment, with investors looking for long-term stable income, is anticipated. Big Data and Real Estate Although real estate is already a massive source of data, a lot of opportunity still lies ahead to quickly tap this data for actionable insights. Players with strong presence in technology sector will have an advantage due to their existing business models for the profitable use of big data.
This stands to alter the competitive landscape of real estate industry. The market is gradually expanding in the direction of complex, interconnected, high-tech, and automated services. Here, well-financed and technologically-leading generalists that can offer a standardized global service strategy will be in a position to strengthen their competitive advantages. The strength for real estate providers lies in their proximity to the data source.
Their new business models will most likely focus on aggregating information at the building, service and market levels. With the rising popularity of BIM "Building Information Modelling" , along with sensors in systems engineering and in rental spaces, increasing amounts of data will appear. This data will contain insights about the operation, capacity utilization, and condition of the building and the systems installed in the building.
As a result, owners and users will increasingly expect pre-emptive detection of technical malfunctions. Funds in the Market In , the number of European real estate funds in the market across strategies reached its lowest level in five years, with a total of offerings.
This was down from the five-year peak of in and lower than the previous lows of in and And yet, the five European funds that have closed so far in have all raised at or above their targets. Across all institutional investors, Europe continues to command the largest share of global real estate allocations at In Europe, fundraising volumes have decreased the most among regional markets over the past five years.

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The funds are massive investment pools funded and backed by foreign governments, with countries in the Middle East and Asia, as well as Norway, among the most active. In the past year, sovereign wealth funds acquired Class A office buildings and high-end hotels in major U. A number of factors have made real estate an attractive target for the funds, especially for those in the Middle East.
First, surging crude oil prices have flooded them with cash. Langford estimated that the equity real estate investment trusts are trading at an 8. At the same time, private-equity funds, which had been pouring capital into the REIT sector over the past few years, are sitting on the sidelines as a result of the credit crunch, he said.
Langford said. The USD billion ADIA invests between 5 per cent and 10 per cent of total assets to real estate through direct, listed and private real estate. Conversely, smaller sovereign wealth funds are less likely to invest in real estate.
Forty-one percent of funds with total assets of USD The USD3 billion North Dakota Legacy Fund has its real estate portfolio entirely invested in private real estate funds, indicative of larger sovereign wealth funds having the capabilities and capital to access the asset class through all routes to market; smaller funds have a more limited scope, if at all.
Location Real estate investments are most attractive to North America-based sovereign wealth funds, with 90 per cent of sovereign wealth funds based in the region investing in real estate. High proportions of real estate investors are also found in Asia 76 per cent and the MENA region 65 per cent , likely due to the sizeable assets managed by many of the sovereign wealth funds in these two areas providing the requisite capital to engage in a diversified global real estate program.
However, sovereign wealth funds based in sub-Saharan Africa and Europe are less likely to invest in the asset class. Furthermore, none of the sovereign wealth funds based in Latin America invest in the asset class. The majority of these Latin America-based investors are stabilization funds that require liquid portfolios; therefore, real estate investment does not fit this criterion.
Route to Market Sovereign wealth funds look to gain access to real estate in a wide variety of ways, with many utilizing a number of routes to market. The majority of sovereign wealth funds look to invest in the asset class directly. One such investor is International Petroleum Investment Company, which has 3. Sixty-four percent of sovereign wealth funds invest in real estate through private funds, such as New Zealand Superannuation Fund NZSF , which gains exposure to the asset class through all routes to market, including private real estate.
NZSF will continue to be opportunistic towards new private real estate fund commitments over the coming year. It maintains a global outlook and will invest in a range of non-core strategies. Listed real estate is a preference for 32 per cent of sovereign wealth funds investing in real estate. Only one fund invests solely in listed real estate, National Social Security Fund — China; however, it has recently been given permission to invest in both domestic and overseas private real estate funds.
International Direct Real Estate Holdings Developing a direct real estate portfolio is an option for sovereign wealth funds with the resources to do so, allowing greater control over the management of real estate assets. Additionally, many acquire landmark properties in major cities, although these capital-intensive trophy assets are mainly the preserve of the largest sovereign wealth funds.
Even though it is a relatively new real estate investor, it has also acquired a 45 per cent stake in 11 Times Square in New York City, which is valued at USD1. Private Real Estate Preferences In terms of private real estate funds, value added and opportunistic vehicles remain the preferred strategies of sovereign wealth funds, with 75 per cent and 71 per cent respectively investing in the fund types. This also shows that value added funds have overtaken opportunistic vehicles as the most frequently targeted strategy among sovereign wealth funds when compared to results gathered in , when 65 per cent of sovereign wealth funds stated a preference for value added vehicles while 74 per cent stated a preference for opportunistic vehicles.
Secondaries and fund of funds vehicles are the least favoured strategy of sovereign wealth funds, as the level of sophistication and capital potential of these investors typically enable them to access the asset class through primary fund commitments.
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