Despite an abrupt pandemic-induced break in fundraising and transaction activity in the first six months of 2020, record-setting fundraising and strong transaction volume in 2019 helped buoy managers' worldwide assets under management to $1.73 trillion in the year ended June 30.
However, most of the 8.5% increase in worldwide real estate AUM can be attributed to the addition of AXA Investment Managers - Real Assets, which did not participate in last year's survey and is the third-largest manager this year with $113.7 billion. By comparison, real estate managers' worldwide assets grew by 7.2% in the prior 12-month period, according to Pensions & Investments' annual survey of real estate managers.
Worldwide real estate equity AUM was up 9.7% to $1.25 trillion in the year ended June 30.
Also giving worldwide AUM a boost is that overall real estate valuations have yet to experience the significant drop that industry executives expected.
"Because of the nature of the crisis, (global) valuations, in aggregate, haven't really fallen that much" between the last six months of 2019 and the first half of 2020, said Will Robson, London-based executive director and global head of real estate solutions research at MSCI Inc. That is the case even though in the first six months of 2020, net operating income figures for properties worldwide in certain sectors such as hotels and retail "have fallen off a cliff," he said.
The pandemic and recession it caused have been a “huge shock to the real economy,” causing the income portion of global real estate returns to drop “harder and faster” than market sentiment around how much the properties are worth, he said. It is taking a while for market sentiment to catch up, Mr. Robson added.
In the quarter ended June 30, the number of sales dropped to 30 properties from typical transaction volume of between 100 and 200 property sales each quarter, according to the National Council of Real Estate Investment Fiduciaries. This drop in deal volume is making it difficult to appraise properties. The transaction volume is based on more than 8,600 commercial U.S. properties in the NCREIF index.
“When you move to a turning point where capital values turn negative ... with any sector of the market ... the difference between the best and worst performing properties will widen,” Mr. Robson said. “At the moment, we’re only seeing that in retail in any significant way.”
According to Real Capital Analytics Inc.’s latest National Trends report, national commercial real estate sales activity is down 68% year-over-year in August and down 36% year-to-date.
Jim Costello, senior vice president of Real Capital Analytics, said that sales activity for all of 2019 was $593.7 billion. Activity through August of this year was $222.1 billion while activity from January to August of last year was $345.1 billion. That is despite the fact that interest rates for commercial mortgages are low.