Emerging private real estate managers face an extremely challenging fundraising environment. Their reach has been declining for years now, but change may be around the corner, according to a new report from Preqin, the alternate assets information and data analysis firm.

Managers raising their first or second real estate fund accounted for just 18% of capital raised globally by real estate funds closed in 2013, compared to 21% in 2012 and 34% in 2011.

There may be light at the end of the tunnel as it appears investor appetite for emerging real estate funds is finally beginning to show signs of improvement, Preqin reported.

“Fundraising is always a particularly challenging prospect for newly established firms, and in a very crowded market with investors increasingly focusing on managers with a long track record, it is only becoming more difficult,” said Andrew Moylan, head of real assets products at Preqin. “The majority of funds abandoned or placed on hold in 2013 were being marketed by emerging managers and these firms are accounting for a smaller proportion of all private real estate fundraising, while a few of largest managers are able to secure the bulk of the capital being raised. “

If emerging managers can present a clear and compelling investment case and are able to effectively reach out to the wide range of institutional investors that will consider new firms, they have the potential to be very successful, Moylan said.

“First-time funds are more likely to be above average performers and many sophisticated investors are keen to gain exposure to the most promising of new firms, which have the potential to be the next generation of leading private equity real estate managers,” he said.

Preqin’s research reveals that 30% of investors will invest in first-time funds, up from 25% in December 2012.

An aggregate $14 billion was raised by the 63 emerging private real estate funds that reached a final close in 2013, the lowest number to close in any year since 2003 when 52 such funds reached a final close.

About 64% of private real estate funds placed on hold or abandoned in 2013 were being raised by emerging managers, the same proportion as in 2012 and up from 60% in 2011.

Some highlights:

Despite typically raising smaller funds, emerging managers spend almost the same amount of time on the road as experienced firms; emerging managers took an average of 18.9 months to reach a final close in 2012, compared to 19.1 months for all other real estate funds.

Funds raised by emerging managers can offer the potential for higher returns; 55% of real estate funds that are the first in a series beat the median benchmark, compared to 45% of funds that are fund number four or later in a series.

Higher-risk strategies such as opportunistic or value-added funds account for the majority (63%) of funds managed by new firms that closed in 2013 and represented 58% of capital raised.

Real estate debt funds raised by emerging managers have grown in prominence, accounting for 21% of capital raised by new firms in 2013, compared to just 5% in 2012.

Read the full report here.