Shyam/Unsplash
Germany's open-ended real estate funds (GOEFs) may finally be approaching the bottom of their crisis. Scope's latest ratings round downgraded five funds, upgraded two and left twelve unchanged — a marked improvement on last year, when more than half the funds analysed were cut and none were upgraded at all. Yet behind the stabilising ratings lies a more uncomfortable reality: the sector continues to shrink as investors withdraw billions of euros and confidence remains fragile.
That question of confidence moved to the centre of the debate this month after Deka deputy chief executive Dr. Matthias Danne publicly challenged one of the industry's most common explanations for its difficulties. Speaking at the BIIS funds conference in Oberursel, outside Frankfurt — the German real estate fund industry's main annual gathering — Danne argued that the crisis was not primarily the result of the 450 basis point interest-rate shock of 2022-23. Instead, he said, "structural management errors" at some fund companies had contributed far more to the industry's current predicament.
Danne's criticism, though he named no specific funds, went beyond market conditions. He pointed to funds launched between 2016 and 2022 that expanded aggressively during an overheated market, acquired assets at peak prices and relied on valuation assumptions that later proved unsustainable. In his view, weak portfolio management, delayed corrections and poor communication with investors helped create the loss of confidence now driving redemptions. That matters because confidence, rather than property performance, has become the sector's principal challenge.
A sector under pressure, but not uniformly
The scale of that investor retreat remains striking. Net outflows reached €7.6bn in 2025, up from €5.9bn in 2024, reducing total assets under management to around €112bn from €120bn a year earlier. Scope expects outflows to continue through 2026, although the pace may be slowing. Net redemptions in the first quarter totalled approximately €1.8bn, while fund managers report that termination notices have begun to decline.
The consequences are visible across the ratings. Three funds — Wertgrund WohnSelect D, Fokus Wohnen Deutschland and UBS (D) Euroinvest Immobilien — suspended redemptions during the first quarter after liquid assets proved insufficient to meet investor demand. Their ratings remain withdrawn pending reassessment.
Scope analyst Sonja Knorr nevertheless sees signs that the worst may be over. Among the 19 funds analysed, downgrades have become less frequent and valuation declines appear to be slowing. The agency expects average returns of between -0.5% and -1.5% in 2026, compared with an average loss of 1.2% in 2025 and -1.65% over the twelve months to April 2026.
Performance across the sector remains highly uneven, and this is where Danne's argument finds its clearest test in the data. Returns ranged from +3.1% at KGAL ImmoSubstanz to -17.8% at Kanam Grund's Leading Cities Invest, which has now been downgraded to CCC, the lowest rating on Scope's scale. Knorr attributes many of the most severe losses to smaller funds that deployed large volumes of capital during the market peak between 2019 and 2021 and are now being forced to recognise substantial write-downs — a pattern that echoes Danne's critique of boom-era expansion more than it points to rates alone.
This year's downgrades fell particularly heavily on Union Investment's globally invested funds. Uni Immo Europa (€11.5bn in net assets) and Uni Immo Global (€2.3bn) both lost around 10% over the past year, largely because of their exposure to the US office market. Roughly 30% of both portfolios are invested in the United States, primarily in offices. The resulting write-downs pushed five-year returns for both funds into negative territory. By contrast, Uni Immo Deutschland delivered a modest positive return, while Deka's own funds — Danne's employer — remained among the sector's better performers, lending some weight to his argument, even as he named no names.
Stable foundations, unresolved questions
Despite the continuing outflows, the underlying property portfolios have proved more resilient than many investors may realise. Occupancy rates remained stable at 92.5% at the end of 2025, average lease terms held at just under six years, and leverage remains conservative. Average loan-to-value ratios increased only marginally from 18.1% to 18.6%, comfortably below the regulatory maximum of 30%. Liquidity ratios of around 15% are roughly three times the regulatory minimum.
The sector is also adapting to a new regulatory environment. Since April, funds have been required to maintain additional liquidity management tools under the Fund Risk Limitation Act. Most providers have introduced redemption fees, while others have adopted gating mechanisms or hybrid models. Scope views the new measures positively but argues that a more standardised industry approach would improve transparency and investor understanding.
The legal uncertainty surrounding risk classification remains unresolved. The Higher Regional Court of Nuremberg-Fürth referred the Uni Immo Wohnen ZBI dispute to the European Court of Justice in October 2025, with a ruling unlikely before late 2026 or 2027. Scope itself believes open-ended real estate funds are more appropriately classified in risk categories 3 to 4 rather than the lower categories under which much of the sector has historically been marketed. Until that question is settled, investors have one more reason to wait rather than commit.
Four years after interest rates began rising, the sector presents a curious contradiction. The portfolios themselves appear increasingly stable. Occupancy remains high, leverage remains modest and valuation declines are slowing. Yet investors continue to withdraw capital. Whether the industry's difficulties stemmed primarily from higher interest rates or from the management decisions made during the boom years remains contested. What is not disputed is the outcome: Germany's open-ended real estate fund industry is still shrinking, even as the foundations beneath it begin to stabilise.