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The latest Scope ratings have delivered a jolt to Germany’s open-ended real estate fund (GOEF) sector. More than half of the 22 funds monitored were downgraded, with some of the industry’s heaviest hitters among the casualties. Deka Immobilien Europa, Uni Immo Deutschland, and Uni Immo Europa all saw their ratings cut, in many cases by more than one notch. This is not a normal course correction. It is a wake-up call for an industry still trying to defend its structure amid mounting redemptions, legal threats, and crumbling distribution pipelines.
Scope cited both lower returns and increased risk parameters. The average return across all monitored funds in 2024 was negative, at –1.3%. The range of outcomes was wide: from +3.8% for the small KGAL Immo Substanz fund to –20.8% for Uni Immo Wohnen ZBI. Even the five largest funds, with more than €10bn each in assets, eked out only modest gains. Worse, Scope expects returns to remain flat to negative in 2025, forecasting a band of –0.5% to +0.5%. With 10-year Bunds yielding around 2.5%, the sector now faces a real competitiveness problem.
Distribution is under severe strain. After net outflows of €8bn in 2024 and Q1 2025, funds are bleeding capital. March alone saw redemptions of over €1bn – the highest monthly outflow since 2017. With the end of notice periods approaching for redemptions filed last year, the third quarter could bring renewed pressure. To meet liquidity requirements, funds have sold more than €6bn in assets, often well-let and income-producing, eroding their future yield base. Occupancy rates have dropped accordingly, down to 92.4% – the lowest level since 2012. Scope notes that leverage levels remain conservative, but this matters little if redemptions continue and prime stock is sold to meet them.
Threat of systemic risk to entire funds industry
Meanwhile, the legal situation surrounding Uni Immo Wohnen ZBI is threatening to tip from case-specific risk into systemic hazard. The Nuremberg-Fürth court ruling that the fund must be reclassified into risk class 6 sent shockwaves through the industry. While the ruling is under appeal, it challenges a long-held assumption: that funds pricing daily, even on the back of quarterly property valuations, could maintain low-risk status. The court disagreed. It ruled that unless a fund uses a proper benchmark or market proxy to calculate its value-at-risk volatility, it cannot justifiably assign itself a risk class as low as 2.
The BVI, Germany’s fund industry association, has gone on the offensive. At the BIIS conference, managing director Rudolf Siebel said bluntly that implementation of the ruling would lead to a sales ban on the fund in question. Without naming ZBI, he made clear that the entire sector is exposed. Many GOEFs are marketed to conservative investors based on their class 1 or 2 risk labels. Roughly 80% of the industry falls into these categories. Siebel further revealed that BaFin supports the industry’s position: that daily pricing based on historical share values is sufficient under the EU’s PRIIPs rules. But he also admitted that the European regulators – ESMA, EIOPA, and the EBA – have yet to endorse this view. ESMA, he said, is "not stabbing us in the back," but "not accommodating us either."
Behind the scenes, BVI and BaFin are lobbying hard to avoid a regulatory reinterpretation. If the Nuremberg ruling is upheld, Siebel said, fund providers may have no choice but to consider new methodologies – including monthly benchmarks, replication models, or even the use of secondary market prices. But most firms appear to be betting on a judicial reversal. ZBI has appealed to the Higher Regional Court, and the BVI has signalled it will push all the way to the European Court of Justice if necessary.
Credibility gap growing throughout distribution chain
In the meantime, distribution is freezing. Bank advisors, particularly at cooperative banks and savings institutions, are re-evaluating whether they can responsibly sell GOEFs under current conditions. The ruling by the Stuttgart court, which ordered full compensation to an investor in Uni Immo Wohnen ZBI on grounds of mis-selling, has only reinforced this caution. Although the judgment rested on advisory failings rather than valuation methodology, the precedent is worrying.
Scope’s downgrades may be the clearest signal yet that confidence is draining. While no major fund has suspended redemptions, the structural vulnerabilities are plain. If the appeal fails, and if EU regulators uphold the need for stricter risk classification, the sector will face an identity crisis. Few providers have mapped out a viable alternative.
The danger now is not just technical. It is reputational. If open-ended funds can no longer credibly claim to be low-risk, then their entire sales proposition collapses. Without clarity from the courts or the regulators, the industry risks drifting into paralysis – a slow bleed rather than a sudden rupture, but one that could prove just as lethal.