Consolidation in the private real estate market is accelerating. Total industry assets under management declined in value by 3.8 percent during 2023 to $4 trillion, according to the global Fund Manager Survey 2024 published by industry associations INREV, ANREV and NCREIF this week. Over the same period, however, average fund manager AUM increased by 12.8 percent to $42 billion.

These factors make for an increasingly competitive market. The largest managers are leveraging their scale and track records to absorb the lion’s share of deals and fundraising, and where higher interest rates have pushed balance sheets to the brink, other firms are assessing how to stay both profitable and relevant. For some, this involves downsizing operations to focus on core competencies.

One such example is Australian manager and developer Lendlease, which announced plans to sell its construction and development interests overseas to pay debt and refocus efforts domestically.

In a strategy update published Monday, the group revealed plans to shed its international construction and development projects over the next 18 months, which would release $4.5 billion in capital to recycle into its Australian operations and international investment management business. While the latter platform would be retained, Lendlease chief executive officer and managing director Tony Lombardo said in a statement the firm would also reduce its co-ownership interests over time and remove “regional cost structures that have weighed on performance.”

Lombardo described the strategy as a portfolio “reshaping,” designed to make the business “less complex, more focused and fit for purpose.”

In the same vein, fellow Australian manager Cromwell Property Group also took steps to simplify and refocus on its home market. Last week, the firm agreed to offload its entire European business, which constitutes an aggregate €3.9 billion in managed assets, to Swiss manager Stoneweg. Cromwell CEO Jonathan Callaghan told PERE the firm was shifting “from a global manager to a local one,” explaining it was difficult to be a global fund manager because “you need a vast scale to be successful at it.”

While Cromwell shareholder ESR Group was, according to Callaghan, not involved in the sale of the European platform, the Hong Kong-based industrial manager itself is in the middle of slimming down its business interests, divesting non-core assets – including its 30 percent stake in Cromwell – to redeploy the proceeds into its three “core pillars” of new economy, alternatives and REITs, as previously reported by PERE.

This trend toward rightsizing in private real estate is not unique to managers, either.

UK pension fund Mineworkers’ Pension Scheme, which owns approximately £1 billion ($1.28 billion; €1.17 billion) in real estate, is in the process of rebalancing its real estate portfolio to be more concentrated and less geographically diverse, per a PERE report this week. According to Dan Berger, director of property and funds at London-based manager Delancey, which took over the management of MPS’s real estate portfolio from LaSalle Investment Management in 2022, the aim is to reduce the size of the portfolio from 41 assets to around 20, refocusing on the type, size and quality of the holdings.

Electing to downsize or narrow the scope of interest may be going against the grain in an industry built on the principles of aggregation and expansion. But that does not discount it from offering another path to success, or at least survival.