Financial expert warns: Investors are selling, so real estate funds must also sell

Financial expert warns: Investors are selling, so real estate funds must also sell

According to a report by finanzmarktwelt.de,

The real estate crisis has triggered a domino effect that is leading to selling pressure on institutional investors as investors exit real estate funds and sell their fund shares. This trend raises concerns about the valuation of commercial real estate, particularly in Europe.

In 2023, private investors withdrew more than one billion euros per month from European real estate funds, resulting in total net assets of 180.7 billion euros. This represents a decline of over 10% since December 2022. The continued outflows have diminished the appeal of real estate as an asset class, particularly in the European commercial real estate market.

The problem of asset illiquidity in open-ended property funds became particularly apparent when UK funds suspended trading following the Brexit vote and had to sell assets to meet redemption requests. This issue resurfaced during the coronavirus pandemic, leading to the closure of some funds.

Nevertheless, there is hope for an improving outlook for commercial real estate, especially if the ECB cuts interest rates as expected and the narrative of a soft landing for the economy proves true. Nevertheless, outflows have exceeded one billion euros per month across Europe in the last three months of 2023.

In Germany, residential properties recorded significant losses in value in 2023: condominiums lost 8.9 percent of their value, single-family homes lost 11.3 percent, and multi-family homes even lost 20.1 percent.

The ongoing crisis in the real estate market could therefore have far-reaching effects on institutional investors, investment decisions and financial stability.

It remains to be seen how the situation will develop and whether the ECB's announced interest rate cut will bring positive impulses to the market.