Secondaries market flourishes as fund outflows continue

With transactions in German office properties completely in the doldrums, the secondary market for trading in property funds is flourishing as investors head for the exits. Pricing in the secondary markets does appear to be bottoming out, perhaps indicative of a stabilisation of prices in the property assets themselves.

At 64.8%, the share of real estate funds made up the lion's share of trading turnover on the secondary market of Fondsbörse Deutschland Beteiligungsmakler AG in the first quarter of 2024. The overall volume of trade on the platform (for all tradeable asset categories, such as private equity or renewable energies) rose in Q1 to €71.75m, from €47.48m in the same period of 2023.

The property sector picked up significantly in March 2024 compared to the previous month. The number of transactions rose from 249 in February to 368 at the end of the first quarter, indicating an accelerating number of investors anxious to get out of the funds now, at the best available price, rather than holding on for the required one-year's notice period at the fund level.

At 88.02%, the average rate was little changed compared to the previous month (88.13%). Segment turnover jumped to €20.43m (February: €9.78m) making it unusually high. Property, therefore, confirmed its importance in terms of turnover in March with a 64.8% share of total trading (previous month: 50.49% per cent).

In February, buyers and sellers were still taking a wait-and-see approach - some because they were waiting for prices to fall further, others because they were not yet willing to accept the fall in prices. The average price for property investments moved sideways in February and stood at 88.13% at the end. A comparatively low nominal turnover of €9.78m resulted from 249 transactions, as there were no very large transactions. As a result, the property segment accounted for 50.49% of total trading in February 2024, significantly less than the long-term trend.

Fondsbörse Deutschland last year presented its new "Private Markets" trading platform at the Expo Real property trade fair, to include trading open-ended and closed-ended special funds for professional and semi-professional investors.The company's CEO Alex Gadeberg said of the platform, "We have been trading shares in mutual funds with property, infrastructure, ships and private equity on our secondary market exchange in Hamburg for more than 20 years. In this way, we can create liquidity for sellers and can provide new investors with a range of financial assets with a good track record."

Since then, numerous potential buyers have registered with the platform, as awareness grows of the possibility of selling shares on the secondary market, rather than sitting out the notice period and being unsure what price you will even get in twelve months time.