GERMANY - Spezialfonds are likely to increase in size and investment scope as the vehicles compensate for the decline in German open-ended property funds (GOEFs), CB Richard Ellis (CBRE) has said.

Despite changes in the institutional landscape, Iryna Pylypchuk, the company's associate director of EMEA research and consulting, said fund managers administering Spezialfonds were likely to remain unchanged from those overseeing GOEFs.

In the wake of changes introduced in March that effectively stopped institutional investors from using GOEFs, Pylypchuk said Spezialfonds were expected to absorb most of the vehicle's outflows.

She added that, despite traditionally being smaller vehicles of only a few hundred million euro, Spezialfonds were now likely to grow in size.

"Alongside launches of smaller Spezialfonds - solely focused on particular markets, such as just the Austrian market or the German office market, for example - larger vehicles are likely to emerge as well," she said, referring to Union Investment's recent launch of a €750m fund targeting retail outlets.

Pylypchuk said recent evidence pointed to a shift in the way both vehicles invested, with GOEFs proving risk-averse following a turbulent few years that saw several funds closed and liquidated.

GOEFs had targeted sales in non-domestic markets, with the majority of acquisitions occurring in Germany, she said.

In contrast to this, Spezialfonds had often stayed in markets close to Germany, limiting them to exposure to Austrian and Dutch real estate.

"However, with more institutional capital targeting the sector, the geographic focus of Spezialfonds will become wider, and more pan-European vehicles will emerge in the future," she said, again referencing Union's recently launched fund, as it was considering investment in core Central and Eastern European countries, such as Poland and the Czech Republic.

She noted that, despite the change in vehicles, the managers overseeing the funds were unlikely to change.

"What is interesting, of course, is that many fund managers that run open-ended funds often run the Spezialfonds as well, so this change may not seem as dramatic on a fund manager level.

"Effectively, I expect this shift in demand toward Spezialfonds could be incorporated fairly quickly by the already existing fund managers."

Aberdeen Immobilien was recently forced to liquidate its Degi Global Business GOEF, having suspended redemptions in late 2009.

It follows several similar liquidations, as well as the liquidation of Allianz Global Investors €1.2bn real estate fund of funds. AGI noted in a statement that the liquidation would free €500m in the first instance.

Schroder Property recently found that half of institutional investors plan to liquidate GOEF holdings in the immediate future, while shifting assets to Spezialfonds and Luxemburg FCPs.