Commenting on the report, Dr Thomas Beyerle, Head of Global Research, says: "We expect for Germany that the largest investor group in 2010 will again be domestic investors who will seek assets that provide a high degree of secured income and are expected to invest with moderate gearing."
Economy
The global economic expansion has gathered pace since mid-2009. We estimate that world quarterly growth was a strong 1.2% for Q4 2009, which is significantly above the trend of the past decade of 0.8%. Emerging A sia has been the main driver of this stronger growth, although Europe and the U.S. have also benefited from a substantial improvement in financial market conditions. Rising world growth should be sustained during the first half of 2010, helped by very loose economic policy.
Within the eurozone, economic growth turned higher in the second half of 2009, helped by a strong upturn in exports and industrial activity. However, consumer demand, with the exception of an incentive fuelled rise in car sales, is poor. Confidence is being held back by a relatively high unemployment rate of 9.9% in January 2010, compared to a cyclical low of just 7.2% in early 2008.
Eurozone growth is set to be characterized by a stronger 'core euro' group, comprising Germany, France, and the Netherlands, whilst the peripheral countries are likely to be significantly weaker. This implies a moderate recovery for 2010/11, with growth and inflation below that of the U.S. The European Central Bank (ECB) is expected to keep interest rates at a very low level, even as the US Federal Reserve begins to tighten monetary policy at the end of the year.
We expect Germany to lead the eurozone recovery. The economy is well-positioned to benefit from improving global demand, while recent tax cuts and a steady labor market have supported consumer spending in the past year. Although the recovery stalled at the end of 2009, there are signs that it will resume this year, helped by a pick up in exports. The improvement, so far, has been related to demand from Asia and elsewhere in Europe, although exports to the US should also start to rise before long, as growth has accelerated across the Atlantic.
Even though the euro weakened during the last two month, the recent surge in unit labor costs is a worrying sign for competitiveness. However, wage growth is already slowing. Meanwhile, Germany's specialism in capital goods, and the previous slump in exports, has left the economy in a strong position to benefit from the global recovery. Prospects for the consumer sector have deteriorated slightly, partly due to negative expectations for the future employment. There remains a risk of job cuts later this year as subsidies for the many workers that registered for the Government's 'Kurzarbeit' scheme in summer 2008 run out. Currently the government is debating an extension of the subsidies. For the time being though, survey measures of hiring bode well for the next few months.
Furthermore, recently agreed income tax cuts, worth 10 billion per year will boost household incomes. Cautious consumers are likely to save some of this extra income. However, with consumer confidence starting to edge up, we think that part of the increase will be spent. Tighter fiscal policy will eventually be required if the Government is to adhere to a law requiring cyclically-adjusted borrowing to fall to 0.35% of GDP by 2016. Consolidation will not start until 2011 and need not be as aggressive as elsewhere in Europe. Overall, we expect the economy to expand by around 2% this year and into 2011.
Office
In comparison with the rest of Europe, German property centers were slower to react to the turbulence in the financial markets with rental price adjustments impacted to a lesser degree. Nevertheless, the weakening in the office rental markets, which had already begun to set in at the turn of the year 2008/2009, has had a significant effect in the face of global economic developments during the course of 2009.
The nine German office centers of Berlin, Dresden, D
