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Germany’s open-ended real estate funds, once a staple of low-risk investment portfolios, are closing out 2024 in a state of flux. Mounting pressures from interest rate hikes, devaluations, and liquidity concerns have led to record outflows, raising questions about the future stability of this investment class. Recent developments have exposed the fragility of these funds and highlight diverging paths for private and institutional investors.
Net outflows in Germany’s open-ended real estate funds reached €688 million in October, according to Barkow Consulting—the fifteenth consecutive month of outflows. This marks a sharp increase from September’s €477 million and closely approaches July’s record figure of €729 million. In total, over €5.5 billion has been withdrawn from these funds in the past 14 months.
Redemption rates have also surged, with gross returns on fund units hitting €858 million in October, while new sales dropped to €170 million—a near ten-year low. Analysts attribute this sustained trend to investor reactions following prominent fund devaluations and insolvencies, which will only fully manifest after the 12-month notice period required for redemptions.
The prolonged crisis has prompted questions about the structure of open-ended real estate funds as retail investment products. Recent closures, such as Schroders’ suspension of its Immobilienwerte Deutschland fund, shine a light on the challenges of managing funds in volatile markets. Initially launched in 2021, the fund struggled to build a diversified portfolio amid rising financing costs and valuation discrepancies. Its transition to a special real estate fund reflects a broader trend of institutional investors prioritizing liquidity and stability over retail access.
Devaluations continue to erode investor confidence. Union Investment’s UniImmo Wohnen ZBI, a residential-focused fund, faced a 17% loss, prompting lawsuits from consumer advocates who argue that its risk classification was misleadingly low. Similarly, DWS’ Grundbesitz Europa has seen significant valuation reductions and high redemption rates, reflecting broader market pressures on office and logistics properties.
Bargain hunters and secondary market risks
SCP Investments’ recent attempt to purchase fund units on the secondary market highlights growing concerns over liquidity and valuation gaps. The company’s offers—often 40% to 50% below stock market prices—have drawn sharp criticism from consumer advocates and fund managers. Commerz Real and KanAm explicitly warned investors against selling at these rates, citing concerns over fair compensation and transparency.
While the Marshall Islands-based SCP defends its strategy as a response to potential fund closures and forced liquidations, critics argue that such actions exacerbate market instability. The disconnect between redemption prices, stock market values, and SCP’s offers illustrates the complexities investors face when navigating secondary markets.
Despite the turbulence, some players see opportunities for recovery. INTREAL’s Camille Dufieux noted that net inflows for open-ended special real estate funds totaled €4.7 billion during the first nine months of 2024, albeit significantly below previous years. While overall fund assets declined by 2.3% to €178.1 billion, stable distributions offer a glimmer of hope for long-term investors.
Professional fund managers are emphasizing the importance of high-quality, diversified portfolios and adherence to sustainability standards. For example, Real I.S.’ “REALISINVEST EUROPA” fund boasts a 50% taxonomy-aligned portfolio, reflecting a strategic shift toward ESG compliance to attract institutional capital.
What lies ahead for the open-ended funds?
As the industry braces for 2025, open-ended real estate funds face a defining moment. Rising interest rates and shifting market dynamics continue to pressure returns, but there are glimmers of hope for well-managed funds with diversified portfolios and a clear strategy. Institutional investors appear more willing to navigate the storm, particularly with funds that integrate ESG principles and demonstrate resilience. However, liquidity remains a persistent challenge, and redemption pressures could still force hard decisions. For an industry once seen as a safe haven, the coming months will test whether professional management can restore confidence in this embattled asset class.
As the industry braces for 2025, open-ended real estate funds face a defining moment. Despite recently falling interest rates, ongoing market shifts are still creating fresh challenges for returns, but there are glimmers of hope for well-managed funds with diversified portfolios and a clear strategy. Institutional investors appear more willing to navigate the storm, particularly with funds that integrate ESG principles and demonstrate resilience. However, liquidity remains a persistent challenge, and redemption pressures could still force hard decisions. For an industry once seen as a safe haven, the coming months will test whether professional management can restore confidence in this embattled asset class.
