Private wealth overtakes institutional capital in real estate markets

The capital currents flowing under real estate are changing in a shift that could affect the evolution of the increasingly sophisticated asset class. Institutional investors – which over the past 20 years have grown to represent a major force in global real estate markets – are slowing their pace of investment. According to Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates, institutions reduced their target allocation to real estate for the first time in 13 years in 2025, even as global transactions rose 14% to $888.6bn (€750bn).

As traditional institutional investors moderate their activity, family offices, private wealth managers and retail-style vehicles are stepping decisively into the gap. Family offices accounted for 45% of commercial real estate transaction volumes globally in 2024, according to Knight Frank.

This shift in capital flows is both cyclical and structural in nature. Real estate is facing stiff competition for institutional capital from infrastructure and private credit at a time when rising interest rates have shifted returns further towards operational performance and income growth, favouring more agile, private wealth-driven forms of capital.

“Times are quite challenging for core capital,” says PwC’s Gareth Lewis, who oversees research for the PwC/ULI Emerging Trends in Real Estate report series. “Traditional institutions are reducing their real estate allocations because they are challenged by rising interest rates and by a broader transition within the sector towards a more operationally intensive asset class. Generating attractive returns has become more complicated, and institutional investors are struggling to build conviction about where and how to invest,” he explains.

As a result, they are often better positioned to deal with some of the complexities emerging in the sector, according to Lewis. “While some institutional investors are bound by specific allocation targets, including real estate, private capital is typically less constrained by rigid allocation frameworks and can help accelerate the blending of real estate and infrastructure,” he says.

Historically, the illiquidity of most private markets has been a major reason for wealth managers to maintain relatively low allocations to the asset class. However, the perceived benefits – higher returns and strong diversification – combined with the rapid growth of the wealth segment, have recently driven increased appetite for real estate.

At the same time, the rise of private wealth is being accelerated by structural forces, including global pension reform and public market concentration. The shift from defined benefit (DB) pension schemes to auto-enrolment defined contribution (DC) systems is advancing across Europe, gradually moving ownership and control of retirement wealth towards households and private-wealth channels.

This shift is influencing both how real estate is accessed and the types of assets in demand, says Lewis. While large institutional investors have historically dominated private real estate through closed-ended and open-ended fund structures, retail capital tends to favour semi-liquid structures – such as open-ended funds or publicly-traded vehicles – which require different deal structuring. “The prominence of household wealth in global real estate markets could lead to a substantial evolution in the sector, simply because the types of real estate that appeal to this capital differ from those that appeal to institutions,” Lewis warns.

Increasingly, family offices and wealth managers are developing into sophisticated investors, growing in scale, expertise and staffing. The expansion of dedicated private-wealth real estate teams underscores how they are not only deploying more capital but also rapidly institutionalising their investment capabilities. Private-wealth managers are playing a critical role in channelling capital into real estate. By pooling funds from high-net-worth individuals and smaller family offices, they are creating investment platforms capable of competing with traditional institutional vehicles.

Global investment advisory firm Bfinance has identified two broad trends emerging in the industry. First, is the creation and distribution of aggregator vehicles, whereby the wealth manager selects a small number of investment products within a particular theme, creates a wrapper to pool investments and distributes the vehicle to its client base.

“Such aggregator products can vary the return and liquidity profile, depending on the strategy and the inclusion of different liquidity layers,” explains Peter Hobbs, head of private markets advisory at Bfinance. This trend reflects the increasing sophistication of wealth managers, with a greater focus on aligning products with their specific audience, including valuation policies, liquidity waterfalls, redemption mechanics and fee structures, he adds.

Second, and effectively a subset of the first, is the rise of evergreen products with lower investment thresholds, enhanced liquidity terms and structures designed to enable broader distribution. “The spectrum of appetite for real estate is varied and largely depends on the segment of the wealth channel,” says Hobbs. “At the upper end of the wealth management industry – family offices and ultra-high-net-worth investors with longer time horizons – there is a tendency to focus on value-add or opportunistic closed-ended strategies, including secondaries and co-investments. By contrast, more retail-oriented – mass affluent – solutions, which require greater liquidity, tend to focus on the core-plus segment of the market, where evergreen products are more readily available.” Both groups favour sectors perceived as more resilient, including living and logistics, as well as alternative asset classes.

The growing presence of private capital is starting to reshape transaction dynamics. Smaller and mid-market deals are gaining prominence, as family offices often target transactions that fall below the radar of large institutions. At the same time, these investors are often more willing to engage in complex or non-core assets, driving activity in value-add strategies, such as redevelopments, as well as in emerging sectors like life sciences and data centres. With fewer layers of governance, family offices can also execute deals more quickly, potentially influencing the speed at which assets can transact in the market. “Deal making is often relationship-driven, as family offices rely on long-standing partnerships,” explains James Croft, director at Greenridge.

Bhuptani, who co-founded Greenridge in 1994, says private wealth has always had a strong income-driven component to its investment process. “What has changed over the past three decades is the shift towards more resilient income,” he notes. “Family offices are now far more focused on capital preservation and stability and have become more sophisticated in managing liquidity – moving from direct investments towards partnerships with fund managers and joint ventures.”

As private investors’ strategies mature, the individualisation of pension capital, alongside the rise of household wealth, could result in hundreds of billions to trillions of new funds pouring into the sector. This suggests that private capital may remain a dominant funding source for real estate in the future.

“The real estate performance challenges of the past five years have reduced the flow of institutional capital to the asset class, and this slowdown has acted as a catalyst for managers seeking to develop solutions for the wealth industry,” says Hobbs. “This, coupled with the growing scale of private wealth, suggests that the segment will become an increasingly important driver of market activity going forward.”

This article was originally featured in the May/June 2026 print edition of IPE Real Assets and published online here.