Executive summary
Private real estate fundraising rebounded in 2025 despite persistent macroeconomic headwinds, elevated interest rates and geopolitical uncertainty.
While this marks a cyclical recovery, fundraising is unlikely to return to the record levels of 2021 and 2022 given ongoing policy uncertainty and tempered expectations among the largest funds in market.
Importantly, many major pension funds remain under-allocated to real estate, providing a structural tailwind for future commitments.
While net outflows persist in US open-ended core funds, redemptions have moderated and performance turned positive for the first time since 2022. Portfolio repositioning away from office toward alternative real estate has improved sentiment.
Fundraising dynamics reflect a widening divide between mega-managers and emerging managers. The top 10 funds captured 40% of total capital raised in 2025, underscoring continued industry consolidation.
M&A activity among major players in the US, Europe and Asia has intensified competitive pressures, leaving first-time managers struggling to secure institutional capital. Although new fund launches continue, capital concentration trends are expected to persist.
Higher interest rates, coupled with greater scrutiny of commercial real estate loans, could make it harder for borrowers to secure affordable financing.
As banks reduce exposure, private credit’s role is expanding. Real estate debt funds recorded $51 billion in final closes in 2025, the highest since 2021, and outperformed equity benchmarks.
Growing demand for real estate lending has prompted both established managers and new entrants to launch debt strategies, with private credit expected to gain further market share in the coming years.
In private wealth channels, non-traded REITs have stabilized after significant redemption pressures. Private placement REITs are gaining traction due to lighter regulatory burdens and flexible structures.
While redemptions still exceed new inflows, regulatory easing and long-term wealth allocation trends present a substantial growth opportunity for evergreen vehicles.
Overall, private real estate is entering 2026 in a phase of cautious recovery.
Fundraising rebound signals mild recovery but don’t expect a renaissance
Private real estate fundraising in 2025 saw the first increase year on year since 2021. Funds raised $172 billion, up 13% from the $152 billion collected the previous year (Figure 1).
Fundraising is unlikely to return to the 2021 and 2022 highs as higher rates persist. The largest closed-end real estate funds still in the market have capital raising targets in line with 2025 levels, which should curb expectations of significant leaps.
Falling asset prices and the availability of debt provide a strong investment case for real estate allocations.
Nearly 90% of funds raised were in opportunistic, value-add and debt strategies (Figure 2), and these strategies will remain popular in 2026. Large, diversified funds will keep attracting more capital than sector-specialists who aren’t riding the data center wave.
Many of the largest pensions are under-allocated to real estate, providing a strong platform for growth in fundraising. The Healthcare of Ontario Pension Plan has $8 billion of commitments still to be assigned to meet the target allocation for the asset class (Figure 3).
Core back on the menu despite structural challenges
Core funds have seen significant redemptions in recent years as returns disappointed and funds rotated out of assets such as office. But there are signs that sentiment around core funds is stabilizing among investors, and opportunities are emerging.
Last year saw $12.2 billion in allocations to NFI-ODCE funds, the industry benchmark measuring US open-ended core funds’ performance. However, distributions and redemptions totaled $19.9 billion, resulting in an annual investor net cash flow of negative $7.7 billion. This was a slight improvement compared to negative $9.4 billion and $8.9 billion in 2024 and 2023, respectively.
Significant disparities remain, however, in the underlying assets and performance of the ODCE funds. UBS Trumbull has seen large redemptions while JPMorgan Asset Management and Morgan Stanley managed to reduce their queues (Figure 4).
Major diversified funds have been shifting their fund portfolios away from office and toward sectors such as single-family rental, self-storage, healthcare and other alternatives. Some have explored redefining core altogether, moving away from old-fashioned parameters like long lease terms to include short-term leases that generate a predictable stream of cash flow.
Performance has also been improving, with the NFI-ODCE benchmark returning 3.7% in 2025, the first positive return since 2022 (Figure 5). The European market has been following the same trajectory (Figure 6).
3.7%: US open-ended core real estate funds returned in 2025
Fund managers are also offering discount programs on their fund’s NAV, allowing existing allocators to re-up in any quantity with no minimum investment required to receive the discounted rate. However, investor mandates remain unchanged (Figure 7).
Office is also attracting renewed interest. Texas Permanent School Fund Corporation has described the space as “almost too cheap to ignore”, while a senior West Virginia Investment Management Board staffer recently pointed to potential one-off buying opportunities as owners with loans coming due are forced to sell.
Consultants are also encouraging clients to consider secondary investments from real estate funds and allocators. StepStone cited a client buying a $300 million position in an open-end strategy for a 5% discount, paying $285 million over four transactions.
Other consultants still do not recommend that their clients increase their core exposure, preferring value-add and opportunistic strategies driven by secular trends like AI, digitalization and demographics.
Emerging managers to fight over institutional capital as mega-funds corner the market
The top 10 real estate funds raised $68 billion in 2025, representing 40% of total investor commitments (Figure 8), while the top 15 managers control 45% of real estate assets.
Top managers have maintained fundraising levels despite the sector’s challenges since 2022, but those outside the top tier have found conditions considerably harder.
Asset concentration is partly the product of the larger managers scaling up through asset growth and M&A to offer investors a diversified, one-stop-shop. Sector, geography and strategy specialists have been absorbed by larger private equity groups, with a significant wave of M&A over the past two years accelerating consolidation (Figure 9).
New managers have struggled to gain traction. Of the $4.2 billion that new real estate managers raised by Q3 2025, two start-ups accounted for more than half of those investors’ commitments – Adam Piekarski’s Derby Lane and Tyler Henritze’s Town Lane Management.
Other emerging managers who are not yet using a drawdown model are raising money for individual deals from smaller allocator commitments. This is typically managed via a joint venture or similar structure. Once they have a track record, approaching institutional investors is a more credible option, although this can take several years. In some cases, managers are ditching their fundraising ambitions entirely.
In 2025, new launches by real estate managers accounted for $152 billion of targeted capital, the lowest amount since 2016. New entrants continue to enter the market, but investor demand for strong pedigrees and track record is higher than ever (Figure 10).
Fund managers push further into real estate lending
Banks accounted for nearly 60% of the originated commercial real estate mortgages maturing in 2025, but that ratio is projected to decline in the next five years as banks dial back their exposure. Private credit has been filling the gap, a trend reflected in a 57% increase in lending to non-depository financial institutions through the first half of 2025.
5.5%: Returns from open-ended real estate debt funds
Although bank exposure to maturing commercial real estate loans in absolute dollar terms continues to grow through 2029, peaking at $387 billion before declining to $354 billion in 2030, their relative exposure to total maturing loans is declining (Figure 11).
Private credit’s role in property lending looks set to grow further. Debt funds have also outperformed their equity counterparts: the NCREIF/CREFC Open-end Debt Fund Aggregate, tracking 18 real estate debt funds, returned 5.5% YTD gross of fees at the end of Q3 2025, against the NFI-ODCE’s 4% over the same period. Closed-end senior debt and mezzanine debt funds tracked similar levels, according to industry sources.
Debt fund fundraising reflected this momentum, with $51 billion in final closes in 2025, the highest since 2021 (Figure 12).
The wave of new entrants underscores the opportunity. Established real estate firms RXR Realty, AEW Capital Management and GID each launched their first debt funds, as did traditional investment houses such as Wellington Investment Management. Non-US GPs have also targeted the US market, with Schroders Capital, Generali Real Estate, DWS and Fiera Capital all launching first-time vehicles focused on domestic commercial real estate. Others, including Blue Owl Capital and CVC Capital Partners, expanded their lending platforms through acquisitions.
European defense-related real estate set to grow with increasing budgets
Defense-related real estate investment in Europe is set to increase, with the industrial and residential sectors poised to benefit from rising budgets driven by geopolitical instability.
Germany is expected to see the greatest benefit, with Poland, France, and the UK not far behind.
In June 2025, NATO states agreed to increase defense spending to 5% of GDP by 2030, a significant increase on the 2% commitment made in 2014. The trend is already attracting capital market attention: HANetf launched the first Article 8 defense ETF in April 2025, the Future of European Defence Screened UCITS ETF (ARMY), targeting responsible exposure to NATO member defense and cyber defense spending outside the US, seeking upside potential from governments in Europe directing renewed investment towards European defense firms.
The bulk of third-party investment is expected to take the form of logistics and residential assets— warehouses, distribution centers and military-adjacent civilian support housing—with managers eyeing both as a growing part of their portfolio.
Early signals are already emerging. PIMCO and Commerz Real are both understood to be exploring defense-related real estate opportunities in Europe. Sirius Real Estate’s £101 million ($137 million) acquisition of Hartlebury Trading Estate in Worcestershire— originally an RAF maintenance base—signals the same intent. Cushman & Wakefield, meanwhile, launched a dedicated Defense & Strategy team in summer 2025 to help clients navigate the sector’s complex real estate requirements.
Demand for data center exposure will remain strong
Data center exposure is set to be a key growth driver in 2026. Having been a bright spot in real asset capital raising in recent years, with managers and allocators seeking to capitalize on the AI boom and surging demand for physical infrastructure. Since 2020, we have tracked 144 real asset funds exposed to data centers, targeting nearly $200 billion in capital.
The number of newly built data centers has doubled in recent years, growing from 300 in 2021 to 600 in 2024 (Figure 13), and first-half 2025 data suggests the full-year total will exceed 2024’s record.
In November, DigitalBridge closed its third data center flagship fund at $7.2 billion, plus $4.5 billion in co-investment capital. The manager, which is being acquired by Japanese financial group SoftBank to drive data center investment underpinning AI platforms, is in the market with a new AI fund.
In July, Blue Owl exceeded its initial $4 billion target and hit its hard-cap with a $7 billion final close for Blue Owl Digital Infrastructure Fund III that signaled huge demand from invesotrs. Blue Owl’s evergreen digital infrastructure fund also raised $1.7 billion in 2025.
Blue Owl is expected to launch Blue Owl Digital Infrastructure Fund IV in Q2 this year with a $9 billion target. Diversified funds across all risk appetites have continued to add data center exposure because of the strong return profiles offered, and not just through specialist funds.
However, doubts about the sustainability of AI investment have begun to creep in across all asset classes. Power supply is the most significant constraint on data center growth, with energy demand compounded by regional building regulations in Europe and the US. Oversupply in China, and other APAC countries, remains a risk but may take time to materialize if not mitigated.
Private placements to bring REITs back in vogue
Real estate fund managers have been among the first to tap into private wealth channels. Non-traded REITs, interval funds and, to a lesser extent, Delaware Statutory Trusts and opportunity zone funds have attracted more capital than other asset classes.
Non-traded REITs finally saw their total NAV grow YoY for the first time since 2022, with the top 10 public non-traded REITs reaching $89 billion at the end of 2025 (Figure 14).
Most have now stabilized after handling significant redemption pressure in recent years—Starwood’s SREIT being the notable exception. By Q3 2025, these offerings had fulfilled around $56 billion in redemption requests, reducing the backlog to less than $1 billion. Redemptions still outpace new fundraising, dampening private wealth investors’ real estate searches over time. Yet Boston Consulting Group estimates that global wealth investors could add $3 trillion of private markets investments by 2030. Regulatory easing is also opening private markets to individual retirement accounts, which could add a further $900 billion from US 401(k)s alone, according to Cambridge Associates.
<$1 billion: Non-traded REIT redemption backlog by Q3 2025
Private placement REITs are attracting investor attention, combining lighter regulatory requirements with clean performance records that legacy vehicles cannot offer. Blue Owl Real Estate Net Lease Trust, the first private placement non-traded REIT for individual investors, was the top net fundraiser in non-traded REITs in 2025, surpassing even Blackstone’s BREIT, the industry barometer (Figure 15). Blue Owl focused on triple net leases, proving a strong draw.
Most launches are now private placements: Goldman Sachs, North Haven Capital, Fortress Investment Group, Bridge Investment Group, New Mountain Capital, Sculptor Capital Management and Stockbridge Capital Group have all entered the space in recent years.
As competition intensifies, managers are finding creative ways to attract capital, with some introducing share classes with lower management and performance fees for founders and financial intermediaries, while others offer bonus shares.
Beyond REITs, tender offer funds have yet to gain the traction seen in private equity, though interval funds targeting real estate continue to show growth.
There is always the danger of less sophisticated investors becoming frustrated with redemption gates in future liquidity crunches, but demand from both retail and institutional investors for evergreen structures remains strong, and growth looks set to continue.
