A recent survey by valuation and research specialists Wüest Partner Germany provides useful insight into the range of real estate funds currently available for German institutional investors – and highlights the weighting given to German asset-dominated funds in the broad range of investable products.
The survey examined German open-ended special funds as well as Luxembourg vehicles, investment KGs, funds of funds and individual club deals that were still open to other investors at the time of the survey. The survey participants were 100 national and international investment managers with products suitable for German institutionals, with the survey being carried out between June and end-August of this summer.
The fund universe that is theoretically open to German institutionals consists of 264 investable funds. Of these, 64 are German funds and 58 European, while there are more than 50 funds focusing on the USA.
Across asset categories, residential funds dominate, followed by office, logistics and retail fund products. In figures, with 118 funds and representing the largest group are diversified funds across several asset classes. Among the sector-specific funds, residential dominates with 51 funds.
The distribution of the funds focused on Germany is different: Only seven out of 63 funds invest diversified, while 28 focus on housing. There are 27 pure office funds, while logistics and retail have 19 funds each, although retail is also investable across other segments. Hotels have five dedicated funds, as do pure shopping-centre vehicles. There are only three German-only logistics funds, while the European investment products include ten logistics funds, making logistics the the largest product group among the European sector funds.
In risk terms, more than 2/3 of the fund products (68%) focus on Core assets. Wüest Partners’ Stefan Stute said “The most important investment criterion for most institutional investors is still a steady stable cashflow. Value-add strategies, which are primarily dependent on price appreciation and less focused on the steady dividend payout, make up about 25% of all strategies.” This is even more apparent with the Germany funds, where fully 75% of the available funds pursue a Core strategy. By contrast, the USA funds show a greater dispensation for Value-Add over the more conservative Core approach.
The top potential returns are in European residential funds with an IRR 5.2% target yield, with diversified funds offering up to 7%, and logistics funds targeting 6.7%. For German-focused funds, the target yield is an average 4.3% for residential, up to 6.7% for office and 5.5% for retail parks – a broad spectrum for differing risk appetites.
