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Germany’s open-ended real estate funds sector is navigating one of its toughest periods in years. Heavy redemptions, valuation adjustments, and liquidity concerns have battered investor confidence, leading to the suspension of redemptions in several funds. While some fund managers see early signs of stabilisation, others warn that the sector’s underlying vulnerabilities remain unresolved.
Fund outflows have been relentless, driven by investor uncertainty and shifting market conditions. In 2024, investors pulled €680 million from open-ended real estate funds in January, followed by €430 million in February—the highest monthly outflows in over six years. The trend continued into late 2024, with €688 million exiting in October, marking the fifteenth consecutive month of net outflows. By November 2024, cumulative withdrawals over a 14-month period had surpassed €5.5 billion. December saw further deterioration, with €900 million in net redemptions, bringing total net withdrawals in 2024 to nearly €7 billion, according to Barkow Consulting’s analysis of Bundesbank data.
This means that the sector suffered total net outflows exceeding €6.4 billion in just 12 months, significantly reversing prior years of steady inflows. This highlights persistent liquidity pressures and declining investor confidence, as large institutional and retail investors continue to withdraw funds at an alarming rate.
Investors locked out of closed funds
Several funds remain closed, unable to meet redemption requests without jeopardising asset values. The wait for investors appears never-ending: five open-ended property funds have not been redeeming units for a year now, leaving investors without access to their capital. This restriction is set to continue, as Degi Europa, TMW Immobilien Weltfonds, and KanAm US-grundinvest have announced they will suspend redemptions for up to twelve additional months. Morgan Stanley P2 Value and UBS 3 Kontinente are expected to follow suit shortly, with their original 12-month closure period expiring shortly. Schroders, for instance, halted its Immobilienwerte Deutschland fund, citing challenges in building a diversified portfolio amid rising financing costs and valuation discrepancies. BNP Paribas Real Estate data suggests a modest rebound in real estate transactions, which could ease liquidity constraints for funds seeking to offload assets. Yet, concerns persist about the depth of investor demand and the price levels at which disposals can realistically occur.
Commerz Real, one of Germany’s largest fund managers, maintains that the worst of the turbulence is over. The firm points to recent successful asset sales above book value and a more positive rental outlook in prime office locations. Some funds, such as hausInvest, have benefited from inflation-linked rental agreements, which have boosted revenues and partially offset valuation losses. Henning Koch, CEO of Commerz Real, acknowledged the sector's difficulties in a recent interview with Handelsblatt, but remains cautiously optimistic about 2025, emphasising the importance of high-quality, diversified portfolios and adherence to sustainability standards as key strategies for navigating the current landscape. However, rising vacancy rates in key markets, particularly for second-tier office properties, suggest that any recovery will be uneven.
Criticism of fund valuations and 'illusions of liquidity'
Not everyone shares this optimism. Fund expert Stefan Loipfinger, founder and CEO of the well-reputed portal Investmentcheck.de and a long-standing critic of the sector, argues in an interview with trade journal Immobilien Zeitung that many open-ended funds have misrepresented their true risk profile. He describes the sector as 'misleading investors with artificial stability,' pointing to valuation practices that fail to reflect real market conditions and liquidity mechanisms that he claims are 'designed to create an illusion of security.' He highlights the persistent gap between official valuations and real market prices, suggesting that funds have been slow to reflect asset devaluations accurately. Loipfinger also criticises the industry’s redemption mechanisms, claiming they create a misleading illusion of liquidity. As he sees it, the model itself is flawed: investors assume they can exit at short notice, yet funds struggle to meet redemptions without resorting to fire sales. He further points to potential conflicts of interest, where fund managers prioritise asset growth over investor returns, exacerbating transparency concerns.
Sonja Knorr of Scope Analysis echoes concerns about liquidity, noting that sustained outflows could force funds to sell properties at discounted prices, adversely affecting unit values. She stresses the need for robust liquidity management and transparent communication with investors to maintain confidence during this turbulent period.
Institutional investors are adjusting their allocations, with some moving away from open-ended funds towards more flexible structures such as closed-end funds, private equity real estate, or listed REITs. Meanwhile, some fund managers have begun exploring adjustments to redemption models, including longer notice periods for withdrawals, in an attempt to stabilise liquidity and restore investor confidence. Regulatory scrutiny is also increasing, with BaFin closely monitoring liquidity buffers and the sector’s exposure to further capital flight. Some analysts suggest that a regulatory overhaul may be inevitable, potentially introducing stricter redemption controls or revised valuation methodologies to ensure greater transparency.
The cumulative effect of these challenges has led to a reevaluation of the open-ended fund model. Investors are increasingly questioning the viability of these funds as stable investment vehicles, prompting calls for structural reforms to enhance transparency, liquidity management, and alignment of interests between fund managers and investors.
The coming months will be critical. If capital outflows continue at their current pace, more funds may be forced to suspend redemptions or restructure their portfolios under pressure. Fund managers hoping for a swift recovery may find that investor trust is harder to restore than market fundamentals. Whether open-ended funds can retain their place as a core investment vehicle in Germany’s real estate market remains an open question.