While most asset classes experienced a hard slump last year followed by a strong recovery, open-ended real estate funds were stable across the board. The average volatility of the funds was below 1%.
Investors rewarded this stability last year, with high net inflows of EUR 7.8bn (compared to EUR 10.4bn in 2019). This led to comparatively high liquidity, averaging 17.2% of fund assets (2019: 20.2%) and significant real estate purchases totalling EUR 8.3bn (2019: around EUR 8bn).
Nevertheless, the funds were not fully immune to the effects of the pandemic. While a large number of funds were downgraded last year due to pandemic-related risks, a key driver of current downgrades is a deterioration of return profiles.
The 15 funds averaged returns of 3.2% in 2019, which fell to 2.1% in 2020 (the spectrum ranged from 1.0% to +5.1%). For 2021 as a whole, Scope analysts expect an average return of around 1.5%.
“The change in the funds’ return profile shows that the risks that already led to rating downgrades last year are now materialising,” says Sonja Knorr, Head of Alternative Investments at Scope Analysis. “Especially those funds with large holdings of hotel properties and shopping centres suffered revenue losses and value corrections.”