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New liquidity management requirements for German open-ended property funds came into force on 16th April 2026. The timing could hardly be more pointed: the sector is simultaneously recording its most sustained period of outflows in years and facing a deepening debate about whether its structural design remains fit for purpose in a changed market environment.
The new rules stem from the EU's AIFM II Directive (Directive (EU) 2024/927), transposed into German law through the Fund Risk Limitation Act (FRiG). From 16 April, fund managers of open-ended alternative investment funds are required to select and implement at least two liquidity management instruments for each fund under management, and to draw up a formal liquidity management plan. Full technical standards, which will specify the permissible parameters for those instruments and how they must be calibrated, will follow via a Level 2 Regulation on 16th April 2027.
Ulrich Creydt, Managing Director at Ypsilon GmbH Steuerberatungsgesellschaft, noted that German funds are broadly well prepared, given the existing framework under the Kapitalanlagegesetzbuch. "In principle, German funds are well prepared, as there are already comprehensive national rules in the German Capital Investment Code, particularly for public funds. These include minimum holding periods, notice periods and minimum liquidity ratios," he said. What is new, Creydt emphasised, is the degree of formalisation — the obligation to implement tools and document a structured plan — rather than the underlying principles.
Among the instruments now formally available is so-called dual pricing, which until now has been rarely used in the German property fund sector. Rather than a single net asset value, dual pricing provides for two prices: a lower redemption price and a higher issue price, which can be adjusted depending on market conditions — for instance in the event of high redemptions or significant inflows. "The new regime starts in 2026, but following a 12-month transition period, it will come into full effect on 16th April 2027 via the technical standards," Creydt explained.
The primary aim of the new framework is to reduce the risk of fund runs — large-scale redemptions within a short period that force managers to sell assets under time pressure and at unfavourable prices.
A sector already under stress
The timing of the regulatory change is significant. It arrives at a moment when German open-ended public property funds are recording their most sustained net outflows since the post-financial crisis period. According to the Bundesbank, investors withdrew a net total of €13.5 billion from open-ended property funds over the two years to early 2026 — more than ten per cent of previously held net fund assets. In January 2026 alone, net outflows reached around €400 million. Since the start of the year, three funds have suspended the redemption of units: Wertgrund Wohnselect D, Fokus Wohnen Deutschland and UBS (D) Euroinvest Immobilien.
Sonja Knorr, analyst at rating agency Scope, offered a measured diagnosis. "The causes lie less in acute quality issues with the properties and more in the structure of the product and the current market environment," she said. "Open-ended property funds invest in illiquid assets but must honour redemptions. When high outflows coincide with a weak transaction market, pressure arises." Suspending redemptions, she noted, is a mechanism to avoid forced asset sales at unfavourable prices while ensuring equal treatment of all investors — but it directly contradicts the core product promise of liquidity.
The three suspended funds span different segments. Wertgrund Wohnselect D and Fokus Wohnen Deutschland are invested in German residential property, while UBS (D) Euroinvest Immobilien holds predominantly office assets across seven European countries, with an occupancy rate of just 77% — the lowest in the sector. Knorr identified the risk factors common to vulnerable funds: smaller size, lower diversification, portfolios assembled at peak prices, weak occupancy rates and an above-average volume of redemption requests.
For investors currently considering the sector, Knorr's advice was direct. "Investors should view the product for what it is: a long-term property investment. Those seeking short-term liquidity are in the wrong place here."
Structural shift, not liquidity shock
The most challenging interpretation of current conditions comes from Claudius Meyer, Managing Director of CR Investment Management, who argued in a recent commentary that the sector's difficulties cannot be adequately explained by interest rate movements alone. "The current developments are less a reflection of a temporary liquidity crisis and more a symptom of a profound structural shift within the sector," he wrote.
Meyer identified several converging forces. The office property market — which forms a significant portion of many open-ended fund portfolios — is facing what he described as a paradigm shift, with artificial intelligence and the normalisation of remote working potentially rendering 20 to 30% of office space obsolete in the medium term. Demographic change is simultaneously accelerating capital withdrawal, as an ageing investor base draws down savings rather than reinvesting. And competition from ETFs and equities — offering higher liquidity, lower costs and transparent performance — is eroding the appeal of open-ended property funds particularly among younger investor groups.
"Rising living costs, falling real wealth and dwindling savings opportunities are reducing the scope for long-term investments," Meyer observed. "Added to this is a growing confidence issue: recurring periods of restricted liquidity contradict the core product promise."
Meyer's conclusion was that consolidation within the sector is inevitable. Capital inflows are already concentrating on a small number of providers with strong brands and high-quality portfolios, while others face sustained outflows. "The interest rate level merely acts as a catalyst," he wrote, "exposing existing weaknesses and accelerating adjustment processes."
The new AIFM II framework, whatever its merits as a technical tool for managing liquidity risk, arrives into this environment as a necessary but insufficient response. It addresses the mechanics of redemption management without resolving the deeper questions about the long-term viability of a product that promises retail investors both property exposure and ready liquidity — two characteristics that, under stress, prove difficult to reconcile.