Real Estate Alert: Pension Pledges ‘Probably at the Bottom’

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Reprinted from Green Street's Real Estate Alert:

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Just a year after hitting their peak, pledges to commercial real estate vehicles from U.S. pensions in 2023 dropped 50% year over year to their lowest level in a decade.

Commitments to funds and separate accounts last year totaled just $32.68 billion, down from the record $65.09 billion notched in 2022. It’s the lowest tally since 2013, when pensions gave $27.77 billion to real estate vehicles, and the fourth-lowest year since Ferguson Partners began tracking the sector in 2011. The Chicago-based firm will release its findings in a report next week.

The 2023 haul is nearly 25% below the 10-year average of $44.19 billion of pledges. Momentum slowed sharply in the second half in particular: Just $14.23 billion of pledges were made in the third and fourth quarters of last year, 25% less than the record $18.61 billion of commitments in the third quarter of 2022 alone.

“It’s really a stark, stark recalibration … from the upward trend we’ve seen over the last five or six years,” said Scott McIntosh, a director with Ferguson. “In terms of fundraising, we’re probably at the bottom.”

McIntosh said illiquid markets, falling property values and overall uncertainty kept pensions on the sidelines in the second half of last year. And while there is buzz around interest-rate cuts and green shoots for increased sales volume, pensions likely will be slow to return.

“We’ll probably see a little bit more momentum as we move into 2024,” McIntosh added. “I don’t think we see an immediate rebound or correction to 2021 or 2022 fundraising figures. But I think managers and investors are cautiously optimistic that markets will open up, and we’ll see more activity than ’23.”

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