Reprinted from Green Street's Real Estate Alert:
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U.S. public pensions have halved their commitments to vehicles investing in commercial real state in the first half of the year.
Pledges to funds and separate accounts totaled just $18.45 billion over the first six months of 2023, down 43% year over year and the weakest first-half volume since 2020, which logged $17.47 billion, according to Ferguson Partners. With just $7.58 billion of pledges from April to June, the second quarter was down 49% year over year – the lowest three-month tally since the fourth quarter of 2020 saw $6.82 billion of commitments.
“This is now the third consecutive quarter of year-over-year decreases,” said Ferguson director Scott McIntosh. “These declines are now becoming compounded and more extreme.” The first-half pace puts 2023 on par with 2020, when the lingering impact of the pandemic led to just $37.25 billion of pledges, the lowest since $35.25 billion in 2017. Every other year from 2018 to 2022 topped $47 billion of pledges — culminating in last year’s record $65.09 billion.
McIntosh noted that while the capital flow has slowed markedly after two consecutive years of record fundraising, the overall tally continues to show commercial real estate is cemented as an asset class for pensions.
The pace of pledges will depend on whether investment sales activity bounces back from overall depressed levels. “We’re still seeing challenges on the capital-markets side. Price
discovery is ongoing, and I think it will take a few more quarters for some of that discovery to resolve itself,” McIntosh said.“ Folks are looking for more visibility and clarity.”