MUNICH-Liquidity levels in German Open-Ended real estate funds have started to pick up recently, which could mean as much as €12 billion in new investments over the next two years if inflows continue as expected, says CB Richard Ellis. GOEFs currently hold around €18bn in cash or immediately liquid assets, which translates into up to €7.5 bilion more spending power.

But not all funds are in equally strong positions. Liquidity is especially high for three fund managers: Union Investment; DEKA--including WESTINVEST and Commerz Real--which between them have over €6 billion to spend immediately. Following the reopening of many funds in summer, net inflows to the sector were €326 million in August, according to the German Industry Assoc. (BVI). This is very encouraging, after net withdrawals in July of over €400 million, due to one-off redemptions from the newly-reopened funds CS EUROREAL and KanAm grundinvest.

Although some reopened funds continued to see net withdrawals in August, the scale was limited. In fact, some that only recently lifted suspensions such as SEB ImmoInvest and AXA Immoselect are already experiencing positive inflows again.

Improved sentiment is already being reflected in GOEF global purchasing activity, particularly in Europe. In 3Q09, European investment reached €790 million, the lion's share of €860 million in the entire first half. Those funds not affected by the crisis in October 2008 have been the most active acquirers in the market this year, although recently reopened funds are also now examining prospective acquisitions.

"The substantial re-pricing of real estate over the last two years makes many European markets an attractive opportunity for GOEFs, which are typically targeting 5%-6% annual returns," says CB Richard Ellis senior analyst Iryna Pylypchuk. "Many funds see this as an opportunity to re-enter the markets from which they have recently been priced-out. Paris can be singled out as one of these."

Investors are looking at a variety of markets and sectors, with over half the 3Q09 acquisitions in Europe outside the office sector. Retail and hotels are popular. Also, the average lot size in the third quarter was €100 million, compared to only €65 million in the first six months.