PERE 100: Bought less, sold even less

Transactions by the PERE 100 cohort of managers were down in the year the market cycle turned, but their net investment positions increased, writes Tom Leahy, head of EMEA real assets research at MSCI.

High inflation, a spike in interest rates and difficulties in price discovery meant global property investment volumes were down by 17 percent in 2022 and by close to 60 percent in the fourth quarter of the year. This slowdown is reflected in the investment activity of the PERE 100, whose aggregate acquisition activity was down 16 percent on the year and 56 percent in the fourth quarter.

However, a drop in dispositions also meant this cohort were net acquirers of real estate in 2022 and added more property to their books than they did in 2021: $86 billion versus $81 billion, respectively.

There was a heavy bias toward the apartment and industrial sectors; the PERE 100 added just under $60 billion of industrial property to their portfolios in 2022. In contrast, office acquisitions dropped by more than one-third and the PERE 100 were net sellers into the office market for the first time since 2018. It is clear that sentiment toward the office sector has turned through the last 12 months and the net-selling trend has continued into 2023.

In terms of net acquisitions, the top three managers were Blackstone, Prologis and KKR. Blackstone has long been the most acquisitive player in global property, and the firm added more than $20 billion to its portfolio in 2022. The vast majority of this activity was in the apartment and industrial sectors, reflecting wider trends.

Logistics is also the focus for second-placed Prologis, which added close to $14 billion to its portfolio in 2022. Most of this activity came in the fourth quarter, at a time when the MSCI Global Property Index showed industrial capital values were down 6 percent on the quarter, the largest loss of value since March 2009.

Following the same pattern of activity, KKR deployed 85 percent of its investment capital in 2022 into the industrial and apartment sectors, adding more than $8.5 billion of industrial assets, primarily located in the US.

2022 will be remembered as the year the cycle turned. Real estate managers enjoyed a lengthy period of low interest rates that pushed huge volumes of capital into their funds, which resulted in an exceptional period of investment and price growth. But the changed environment means the case for property will have to be restated for a world with structurally higher interest rates.

That will test how sticky these allocations to real estate are, and what that means for the net investment positions of the PERE 100.