CRE Private-Equity Fundraising Shrivels Under Coronavirus
“As consumers and businesses adapt to enforced distancing and lockdown measures, the way in which Americans use commercial property has abruptly changed."
The new coronavirus has stalled the growth of commercial real estate in North America in the first half of 2020, according to a report by Preqin.
According to the report, private real estate equity fundraising reached a peak in 2019 with approximately $83 billion in 2019. The report shows that number was on track to match in 2020, however by June only $23 billion has been raised in the sector.
The report also shows that deal-making has been on the decline compared to 2019. There were 3,639 deals made in 2019. However, there have only been 968 deals made in the first half of 2020.
“As consumers and businesses adapt to enforced distancing and lockdown measures, the way in which Americans use commercial property has abruptly changed,” Christopher Beales, a real estate spokesperson at Preqin said.
All sectors of commercial real estate have gone down, according to the report. However, retail and hospitality sectors have been hit the hardest. The first half of 2020 has only seen $3.4 billion in private equity real estate deals in the real estate sector and only $6 billion in the hospitality sector. Deal making for office assets in 2019 was set at $90 billion and is in the first half of 2019 is set at $19 billion.
Beales said COVID-19 has accelerated longer-term trends such as the rise of e-commerce which have made more traditional brick and mortar shops less relevant to investors.
There are states that are thriving in this market. According to the report, California stands as the most valuable deal-making state. In the first half of 2020, the state recorded a deal value of $5.3 billion. Texas and Massachusetts have shown to be the most resilient markets under the COVID-19 climate. In the first half of 2020, Massachusetts deals were valued at $3.2 billion and Texas deals were valued at $2 billion. Both Texas and Massachusetts are on track to meet their 2019 totals. Last year’s numbers for Texas and Massachusetts were not immediately available.
Despite the setbacks caused by the COVID-19, investors are ready to make deals once the market returns to normal. The report states that U.S. commercial real estate “dry powder” is at a record of $147 billion, as of December 2019.
“However, the commercial real estate market in North America is still growing, and fund managers have a lot of dry powder to spend. As new ways of life arise, new opportunities will come to the market. The challenge for managers will be to gauge what the next 10 years of working, shopping and holidaying will look like,” Beale said.