Last updated: 11:32 / Friday, 31 January 2014
Cerulli's report

European Property Funds Are Back on the Radar

European Property Funds Are Back on the Radar
  • But investor sentiment is mixed, according to Cerulli
  • Many German funds have closed their doors to redemptions

Pan-European real estate fund returns rose sharply in 3Q 2013, reaching 1.9%, their highest quarterly level since March 2011. While total inflows look healthy, there are plenty of negative numbers or weakening net new flow statistics at country level.

"Spanish funds have had a torrid time with many retail funds still in wind-down mode. German funds were also hit hard, caught out by redemption requests and liquidity issues," commented Barbara Wall, Europe research director at Cerulli Associates. "Many German funds have closed their doors to redemptions-for some funds the move has been permanent. That has led to a divergence in performance between the zombies and the survivors."

In the year to end-November active funds substantially outperformed those in liquidation, returning 2.2% against -6.4%, but investors are still wary. German trade body BVI reports a dramatic fall in flows into offenen Immobilienspezialfonds in 2Q and 3Q. A primary cause is the introduction of the Alternative Investment Fund Manager's Directive.

Added to that are property-specific measures. From July 22, 2014, new investors will have to hold their property fund investments for at least two years and give one year's notice for redemptions. A mini-rush preceded implementation, only for sales to be crushed from August onward.

"A return to the good old days seems unlikely-we expect more closures and mergers," said Cerulli senior analyst Angelos Gousios.