German open-ended funds may plough EUR 25 bn into global property

German open-ended funds (GOEFs) have the firepower to invest as much as EUR 25 bn in the global commercial real estate market over the next two years, according to a new report by CB Richard Ellis. The international broker based the claim on the funds' high liquidity and projected cash inflows of EUR 7-8 bn in 2008.

'The GOEFs' unique characteristics as equity-rich, risk-averse investors give the sector heightened strength in today's credit-scarce business climate,' CBRE said in a statement.

According to the report German Open-ended Funds: Past, Present and Future, Europe's mature, liquid markets will remain the key target for the funds. Approximately 85% of their EUR 25 bn on two-year potential purchasing power will stay on the continent, of which 20% will flow towards Germany.

The Central London market with initial yields currently above 5% - the level of returns targeted by the GOEFs - continues to attract interest with many GOEFs. The German funds were one of the largest investors in Central London this year, spending EUR 860 mln there in the first half of 2008. Together the UK and Sweden combined are likely to attract some 15% of the GOEFs'total Europe-allocated purchasing power, the report said.

The report said the funds are likely to allocate 15% of their purchasing power to Asia and the Americas to continue their global diversification, as the current non-European share of the GOEFs' total assets under management is still low at 8.5%. Asia has become increasingly interesting to the funds, especially now that the use of indirect investment vehicles has been made possible. Therefore it is likely that 10% will be targeted at Asia.

Iryna Pylypchuk, senior analyst in CB Richard Ellis' EMEA Research & Consulting team and author of the report, explained: 'One of the key drivers behind the strong acquisition programmes of the GOEF sector is their very high levels of liquidity. At February of this year, the level of liquidity had reached around EUR 22 bn, which represents around 27% of their total funds under management.

'Even though they have been very active buyers over the past six months, with global purchases totalling more than €5 billion, net cash inflows during the first half of 2008 stood at more than €4 billion, followed by further EUR 1.2 bn in July alone. Consequently, by the middle of 2008, they had only eroded their cash position by EUR 1 bn, with their liquidity level almost unchanged at around EUR 21 bn. As the more leveraged buyers have withdrawn from the market, these equity-rich investors have strong buying power and are set to remain very active in Europe in the short-to-medium term, both in absolute terms and most certainly as a proportion of overall market activity.'