The risk profile of German open-ended real estate funds is rising as asset managers seek higher returns, according to Scope Analysis.
The Scope report said the funds’ risk profile rose as asset managers, faced with “continued strong investor inflows given the low-yield market environment”, seek higher returns in new property developments and less liquid markets.
The report’s ratings, which reflect the risk-return ratio of open-end real estate funds compared with alternative investments, surveyed 20 funds with €90bn assets in total. Seven of the funds were for institutional investors.
The report states that risks of the funds have increased on average. Market prices are high while managers have increased investments in new property developments, Scope said.
“In addition, risks are increasing in individual segments such as shopping centres,” the report stated. However, the report said the higher average risk profile of the funds has been offset by rising returns.
These can be attributed to high rental rates and rising property values, the Scope report said.
Scope said it expects strong demand for open-ended real estate funds again this year.
”The main reason remains the comparatively attractive returns in the current market environment”, it said.
