In 2024, real estate fundraising slowed not only in the United States but also across Europe, Asia-Pacific (APAC), and global emerging markets, as shown in Exhibit 1<\/em><\/strong>. Historically, approximately 25% of institutional fundraising activity has targeted European and APAC markets. Cambridge Associates clients have historically allocated a similar proportion to these regions. However, evolving regulatory, monetary, and tariff dynamics in the United States are prompting investors to reassess geographic allocations. This potential shift reflects both the search for diversification and the responsiveness of institutional capital to changing global market conditions.<\/p>\n Though past performance is not a reliable indicator of future results, particularly for regions like Europe and APAC with smaller sample sizes compared to the North American region, Cambridge Associates\u2019 database of real estate fund performance data offers meaningful insights. We analyzed the performance of more than 210 ex-US (Europe and APAC) focused value-add and opportunistic funds from vintage years 2009 to 2020. Due to the limited number of funds in early vintages, we grouped the sample into three-year buckets to minimize variability and provide a clearer picture of performance over time (as shown in Exhibit 2<\/em><\/strong>). We excluded emerging markets managers (where underperformance is prevalent) from our analysis due to the small number of funds focused on those regions, wider performance dispersion, and limited opportunities for institutional capital historically.<\/p>\n From 2009 to 2020, ex-US funds had a median net internal rate of return (IRR) of 6.3% compared to 10.3% for US-focused funds and have generally lagged US funds. However, in some vintage year groups (e.g., 2012-2014), upper quartile ex-US funds outperformed US funds and experienced less return dispersion and downside outcomes. Reduced dispersion likely reflects the smaller sample size of ex-US funds but can also be attributed to experienced regional GPs who manage downside risk more effectively, amid somewhat limited upside due to broader macroeconomic factors. Underperformance also reflects currency drag, as US investors faced, on average, a 150 bps hit in Europe and 270 bps in APAC due to weaker local currencies. The currency impact was most pronounced during the GFC and its aftermath (2009\u20132013), which involved significant currency headwinds and a slower recovery in European and APAC markets compared to the US.<\/p>\n Unpacking the regional performance further, developed European funds have lagged the US in performance over the past decade, partly due to challenges like Brexit, sovereign debt issues, and a weaker currency. Since their mid-2022 peak, European real estate valuations have fallen by over 20%, slightly more than US real estate valuations. While the European Union has experienced only 8% GDP growth over the last ten years compared to 28% GDP growth for the US, interest rates have stabilized (2.0% European Central Bank rate versus 4.25%\u20134.5% in the US). Alongside an improving macroeconomic outlook, muted tariff impacts from diversified trade relationships, and the potential for currency appreciation (with the Euro and Pound sterling undervalued relative to the dollar), these factors have created attractive entry points in the European real estate market.<\/p>\n Supported by strong demographics and economic growth, certain regions, such as Southern Europe (particularly Spain) and the Nordics demonstrate compelling dynamics. Residential and alternative sectors, including student housing, are particularly attractive due to persistent housing shortages and rising demand from migration. Logistics assets also continue to benefit from the growth of e-commerce. While the UK remains the largest and most liquid market, its persistently high inflation and corresponding monetary policy make it more challenging at present.<\/p>\n Investors can gain European exposure through diversified pan-European funds or by selecting regional and sector specialists. However, if choosing the latter, it is important to maintain broader diversification across the overall portfolio.<\/p>\n Developed APAC real estate funds have delivered a median net IRR on par with US-focused funds (9.3%), with greater dispersion. The Asian-Pacific real estate environment has been challenging in recent years due to elevated uncertainty and financial market volatility, but Australia, Japan, Singapore, and New Zealand still offer growth and diversification benefits for investors seeking to capitalize on market repricing and strong fundamentals.<\/p>\n While fundraising for APAC real estate reached a record low in 2024, transaction volumes have picked up, signaling renewed market activity. Investor interest is most pronounced in Japan, which is viewed as a relatively safe haven due to its low borrowing costs and the ongoing wave of large corporate real estate dispositions. As of 2022, Japanese corporations owned about $3.2 trillion in domestic real estate. Government reforms and pressure from investors are encouraging companies to improve low price-to-book ratios, prompting them to divest real estate holdings for greater balance sheet efficiency. By March 2024, 40% of large cap listed companies were trading at a P\/B ratio of 1.0 and held approximately \u00a5180 trillion (about $1.2 trillion) in fixed assets, creating significant opportunities as these firms sell real estate to focus on core businesses. Japan\u2019s hospitality and multifamily sectors are particularly attractive, with value-add strategies focused on operational improvements such as leasing up vacant assets. There is also increased interest in alternative real estate sectors across APAC, including data centers, student accommodations, life sciences, and infill logistics, where supply-demand dynamics are favorable due to limited new construction.<\/p>\n Opportunistic strategies\u2014especially those acquiring distressed assets at deep discounts or developing under-supplied assets with proven demand\u2014are attractive in the current interest rate environment. Similar to Europe, investors can gain APAC exposure through diversified pan-Asian mandates that offer flexibility to pursue the best risk-adjusted opportunities across the region, while Japan stands out as a safe haven for more risk-averse investors. While ex-US markets present intriguing opportunities to deploy capital in the current environment, if long-term rates remain elevated, investors focused on yield may consider income-oriented strategies, particularly as the distribution environment for traditional private real estate funds remains muted.<\/p>\n As discussed previously, slow fundraising activity can be attributed to muted transaction volume and lower distribution yields, which remain well below historical averages. By the first quarter of 2025, closed-end real estate funds launched in 2020 had distributed approximately 24% of total fund capital back to investors. This distribution level is about half of what earlier vintage funds (2010\u20132018) had distributed at the same stage in their lifecycle. This pronounced slowdown in distributions reflects broader macroeconomic headwinds prompting GPs to focus on capital preservation and liquidity management in response to persistent macroeconomic uncertainty and higher financing costs. As a result, LPs are recalibrating their allocation strategies and are increasingly seeking liquidity through current yield. Below, we discuss different strategies LPs may consider to generate current income.<\/p>\n The rise in interest rates (as seen in Exhibit 3<\/em><\/strong>), valuation resets, the \u201cmaturity wall,\u201d and the temporary pullback of traditional lenders from real estate have reshaped the lending landscape. Alternative lenders and credit funds have filled the liquidity gap, offering higher yields and stronger protections, such as robust covenants and lower loan-to-value ratios. Today, real estate credit strategies\u2014particularly senior and mezzanine debt\u2014offer target IRRs that are competitive with equity, with a significant portion of returns coming from income. With limited distributions from traditional equity investments, investors have turned to credit strategies for diversification and consistent cash flow generation, though these come with limited upside potential, especially compared to other yield-oriented strategies, such as core and triple net lease strategies, that we will discuss later in the article.<\/p>\n Historically, real estate credit funds have accounted for less than 20% of total real estate fundraising activity, except in a few years marked by particularly strong fundraising markets. Over the last five years (2020 \u2013 2024), the median real estate credit fund size increased at approximately a 10% compound annual growth rate (CAGR), which is double the pace of growth over the preceding five-year period (2015 \u2013 2019). The median size of real estate equity funds has increased as well, but to a lesser degree, underscoring the broadening opportunity set within credit strategies in recent years. Notably, a growing number of sophisticated, diversified equity funds are recognizing and capitalizing on opportunities in the credit space, and while these vehicles are not always explicitly categorized as \u201ccredit,\u201d they are increasingly allocating capital to such strategies.<\/p>\n In conclusion, the substantial amount of real estate credit capital raised in recent years, combined with a likely decline in interest rates, could impact returns, making managers with strong risk management and cycle-tested experience\u2014especially those who structure deals to protect against leverage-related downside\u2014best equipped to navigate the environment.<\/p>\n Triple net lease (NNN) strategies also stand out for their ability to deliver predictable, long-term income streams with minimal operational responsibilities and some potential upside. In a typical lease structure, the landlord owns the asset and holds a long-term lease with a tenant who assumes responsibility for most, if not all, operating expenses, thereby minimizing asset management burdens for the landlord. This arrangement is most common in single-tenant industrial and retail properties, where the quality of cash flow is closely tied to tenant creditworthiness and lease terms.<\/p>\n Target returns for NNN strategies are generally in line with credit strategies, with the majority of returns derived from income. Investors benefit from contractual rent escalations that help offset inflation risk, while the long-term nature of leases (often 10\u201315 years) ensures income stability. However, these advantages come with considerations: tenant defaults can significantly impact cash flow and property value, and the fixed or modest rent increases may limit upside potential.<\/p>\n While only a few managers focus exclusively on NNN strategies, recent market data indicate that net lease investment volumes remain robust, with industrial assets dominating the sector despite a slight overall decline in transaction activity. Overall, NNN strategies offer a compelling solution for investors seeking income-oriented real estate exposure, complementing other approaches such as core\/core+ real estate and credit within a diversified portfolio.<\/p>\n Core real estate, typically held in open-end vehicle structures, has distributed approximately 4% of capital back to investors per annum over the past ten years, even amid the recent decline in property valuations. This steady income profile stands in contrast to the volatility experienced in other segments of the real estate market; however, as valuations for core properties declined through 2023 and 2024, these funds\u2019 total returns have been negatively impacted by decreasing property valuations.<\/p>\n Throughout 2023 and 2024, private credit and real estate credit strategies became increasingly attractive relative to core real estate, delivering a higher income return without the negative drag from property valuation decreases. The resulting environment placed significant pressure on the core real estate industry, as redemption queues lengthened and investors turned to alternative sources of current income return. Some parts of the core real estate industry remain challenged, and these dynamics coupled with the proliferation of new core and core plus managers in recent years have raised the prospect for industry consolidation in the years to come.<\/p>\n Despite headwinds, there are emerging signs of stabilization in core real estate markets. Notably, the spread between appraisal and transaction cap rates for core properties has narrowed, suggesting that valuations have stabilized. As income returns from core real estate remain stable, the potential for total returns to benefit from a recovery in property values is rising. Increasing transaction activity will help to alleviate pressure on core managers seeking to fulfill existing redemption requests and improving market conditions will likely coincide with a return of capital to the sector.<\/p>\n While the real estate market environment in 2025 has been largely disappointing relative to expectations entering the year, there are opportunities to capture value in the current market environment. European and APAC markets are increasingly attractive for investors seeking diversification and long-term growth, particularly as the US market contends with heightened policy and economic uncertainty. Within these regions, sector-specific and tactical strategies\u2014especially in residential, logistics, and alternative assets\u2014offer compelling opportunities, while Japan stands out as a relatively safe haven in Asia.<\/p>\n The muted capital distribution environment has elevated the appeal of income-oriented strategies, including real estate credit and triple net lease, which provide investors with resilient cash flows and downside protection amid ongoing market dislocation. Core real estate, though challenged by valuation declines and redemption pressures, is showing early signs of stabilization as cap rate spreads narrow and transaction volumes begin to recover. The proliferation of credit strategies and the potential for industry consolidation further underscore the dynamic nature of today\u2019s market.<\/p>\n Looking ahead to 2026, there is potential for improving macroeconomic conditions and a gradual normalization of interest rates will support a continued recovery in transaction activity across global real estate markets. As bid-ask spreads tighten and investor confidence continues to return, the potential for property value appreciation should increase, particularly in markets and sectors that have repriced most significantly. Against this backdrop, investors who remain disciplined in underwriting, emphasize operational value creation, and maintain a diversified, global approach will be best positioned to unlock value and generate durable income in the evolving real estate landscape. For prospective investors, it is important to maintain vintage year diversification and commitment pacing for long-term portfolio success.<\/p>\n _________________________________________<\/p>\n Authored by:<\/p>\n![\"Closed-End](\"https:\/\/www.cambridgeassociates.com\/wp-content\/uploads\/2025\/10\/PREA-Exhibit-1-300x182.png\")
<\/p>\n![](\"https:\/\/www.cambridgeassociates.com\/wp-content\/uploads\/2025\/10\/PREA-Exhibit-2-300x181.png\")
<\/p>\n![\"US](\"https:\/\/www.cambridgeassociates.com\/wp-content\/uploads\/2025\/10\/PREA-Exhibit-3-300x208.png\")
<\/p>\n<\/h2>\n
European Real Estate Outlook<\/strong><\/h2>\n
Asia-Pacific Real Estate Outlook<\/strong><\/h2>\n
Slowdown in Distributions and the Spotlight on Income-Oriented Strategies<\/strong><\/h2>\n
Real Estate Credit Outlook<\/strong><\/h2>\n
![\"US](\"https:\/\/www.cambridgeassociates.com\/wp-content\/uploads\/2025\/10\/PREA-Exhibit-4-300x236.png\")
<\/p>\n<\/h2>\n
Triple Net Lease (NNN) Real Estate Outlook<\/strong><\/h2>\n
Core Real Estate Outlook<\/strong><\/h2>\n
Conclusion <\/strong><\/h2>\n