Luxembourg’s role as a global leader in real estate fund structuring remains robust, with fund initiators increasingly selecting the jurisdiction for its regulatory clarity, flexibility, and global reach. Notably, the rise of Reserved Alternative Investment Funds (RAIFs) and other AIFs reflects a clear market demand for faster time-to-market and investor-friendly structures, aligning with Luxembourg’s capacity to adapt to evolving market needs.
Net assets under management in Luxembourg real estate Investment funds (Graphic: ALFI)
A Preference for lighter structures and regulatory flexibility
The REIF market is steadily shifting toward more flexible and streamlined structures. Over half of the funds surveyed (54.5%) now use RAIFs, manager-regulated AIFs, or non-regulated vehicles – up from just one RAIF in 2016 to 226 today. Simplicity and tax transparency also shape legal choices: 59% of funds use the limited partnership format (SCS/SCSp), while SICAVs remain popular at 43.7%.
Stable investor appetite and strategy diversification
Luxembourg’s REIF ecosystem continues to be predominantly driven by institutional investors, making up 88% of funds. Only a small share – 0.9% – targets retail investors. Notably, most funds are also structured for a limited number of investors.
A key trend in the sector is diversification, with multi-sector strategies gaining ground. Currently, 53% of REIFs follow this approach, up from 47% in 2021. Single-sector strategies, such as residential, office, and retail, have remained stable.
Luxembourg’s REIF ecosystem continues to be predominantly driven by institutional investors, making up 88% of funds
Also, the market is seeing a shift in risk profiles, with a growing preference for stable, income-generating assets. While some funds remain focused on higher-risk, opportunistic strategies, there is a clear trend toward balanced approaches that cater to a wide range of investor preferences.
Geographical reach and global appeal
Luxembourg continues to attract global fund initiators, with 88.7% of promoters based in Europe, particularly in Benelux, Germany, France, and the UK. North American and Asia-Pacific promoters make up 11.3% combined.
In terms of investor geography, four in five investors in Luxembourg’s REIF market are based in Europe, though there’s growing international interest. The distribution of funds remains largely cross-border, with a considerable number of funds reaching multiple countries - 51% of funds distributed across 2 to 5 countries – underscoring Luxembourg’s position as a key player in global fund distribution.
David Zackenfels, ALFI (Photo: ALFI)
Liquidity management and market resilience
Recent challenges have tested the resilience of real estate funds. However, the 2024 survey shows that about 80% of funds maintained their investments, with a smaller portion opting to extend fund lifespans or adjust their strategies. Only a few chose liquidation or reinvestment, highlighting the sector’s ability to weather pressure and adapt to changing conditions.
When faced with current market uncertainty, Luxembourg REIFs have remained stable. Most funds have opted to hold or extend their life rather than sell assets under adverse market conditions. Liquidity management tools, such as gates or redemption in kind, remain limited, signalling strong governance and long-term investment strategies.
The market is experiencing a shift in fund structures, with a growing share of open-ended funds featuring restrictions, now accounting for 19%. As expected, closed-ended funds make up the majority at 67% of funds surveyed. This trend reflects a balancing act between investor demand for liquidity and a cautious stance toward market volatility.
The findings of the 2024 REIF survey reinforce Luxembourg’s leadership in structuring and servicing real estate funds for institutional investors worldwide.
Fee models, gearing, and fund size
Fee models based on Net Asset Value (NAV) remain popular, with about 40% of funds adopting this structure. While most funds still charge management fees under 1%, a growing number are opting for slightly higher rates. Performance fees, however, have declined since 2021. The market continues to be driven by smaller funds, but the share of larger funds has seen a slight increase. Additionally, debt appetite is also on the decline. Funds are becoming more conservative in their use of leverage, reflecting the current interest rate climate.
Looking Ahead
The findings of the 2024 REIF survey reinforce Luxembourg’s leadership in structuring and servicing real estate funds for institutional investors worldwide. The market shows strong diversification, solid investor confidence, and the flexibility to adapt to evolving market dynamics. Regulatory changes such as the ELTIF 2.0 reform open the door for greater retail participation in long-term income producing real asset strategies and Luxembourg is poised to further expand its footprint in the REIF market.