Real estate secondary trading hits record in 2016, says CBRE

Trading of real estate funds on the secondary market reached a new record in 2016, according to CBRE.

The company recorded 187 ‘secondaries’ transactions worth $2.43bn (€2.29bn) across its global network.

In a similar study last month, Landmark Partners said said it recorded 99 secondaries deals in 2016, representing $5bn in value.

Paul Robinson, executive director of CBRE Capital Advisors, said: “Secondary trades in real estate funds are hard to track, particularly on a global scale, due to sheer volume of capital deployed in real estate funds.”

The definition of what constitutes a secondary is far from consistent, he said.

“Consequently, CBRE only ever publishes its own secondary trading volumes,” Robinson said. “However, these results provide an accurate representation of how the market has performed as a whole.

“We have seen significant levels of growth over the past year and the principal drivers behind this growth look set to continue over the coming year.”

CBRE said investors had become more familiar with secondary trading and that the market had become the preferred route for investors looking for liquidity.

The report also suggests investors are also more frequently using the secondary market to better time the deployment and withdrawal of capital from funds.

The industry is also more transparent, meaning an investor can be more confident they are executing “at market”.

IPE Real Estate recently reported that political uncertainty and market volatility could help boost transactions.

Pricing varied widely over the course of the year, the report shows – between discounts of 25% and premiums of 6.5% to net asset value.

Pricing depended on underlyign property markets, capital structure of funds, and the levels of income and capital returns.

CBRE said that on balance the highest pricing was secured in alternative sectors such as residential and student housing, as well as industrial and logistics. These were perceived by investors as defensive strategies compared with the more mainstream commercial market.

Core European funds also performed well, while weaker pricing was evident in more traditional retail and London office strategies.

In an article in IPE Real Estate, Robinson recently pointed to the growing activity in core funds.

“While we cannot prove it, we suspect the flow of secondaries in opportunistic funds diminished in 2016,” Robinson said. “Arguably the sector that drove the growth in real estate secondaries is now the laggard.”

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