King Sturge: Optimism in the real estate industry is losing momentum (DE)

In May, the sobering macroeconomic sentiment spilled over into the real estate industry. The poll-based Real Estate Climate, mirroring the industry sentiment, clearly suffered a damper in the May survey of the monthly King Sturge Real Estate Economy Index. Compared to the steep increases of previous months, the sentiment gained but 1.0 percent most recently, even if it did reach a two-year high at 99.2 index points (up from 98.3 last month).

The May poll among about 1,000 market players also revealed that the two sub-indicators of the Real Estate Climate, namely the Investment Climate and the Rental Income, similarly made marginal gains only. Then again, they had departed from very different starting points. The Investment Climate, which monitors investment demand and purchase price development, rose by 1.0 percent, from 110.8 to 111.9 index points. The fact that the figure exceeds the 100-point threshold shows that the majority of respondents take a positive view of the investment sentiment. The Rental Income, indicating user demand and rent development, scored a minimal gain of 0.9 percent and now stands at 87.0 index points (up from 86.2 points last month). In contrast to the sobered, if stable, sentiment among the polled market players, the Real Estate Economic Situation, an index based on hard macroeconomic facts, registered its first reversal since August 2009 as it dropped to 180.4 points.

"Evidently, the healing process has taken a rather disappointing turn, and it appears to be far from completed," observed Sascha Hettrich, Managing Partner of King Sturge Deutschland. "This is explained by at least two reasons. For one thing, the macroeconomic environment must be described as extremely fickle then as now, and among the indications that confirm the verdict is the slow economic growth during the first quarter. Secondly, we keep seeing surprisingly drastic setbacks – with the financial markets leading the way," Hettrich went on to say. "It seems that the real estate industry will have to brace itself for a rather tough phase in the market recovery, and the latter may actually not bring a genuine boom before 2011."

The same reticent trend in sentiment characterises each of the segment climates. The Office Climate has stabilised further, rising by 2.7 percent from 79.3 to 81.5 index points and thus reaching its highest level since August 2008. The segments Retail and Residential received a slightly inferior month-on-month rating from the market players while retaining their predominantly positive assessment. The Retail Climate lost 0.1 percent as it declined from 102.9 to 102.8 index points, whereas the Residential Climate went down by 0.3 percent, from 138.3 to 137.9 index points.

The Real Estate Economic Situation, based on the statistical analysis of DAX, ifo, DIMAX, interest rates, and government bonds, deviated from its growth course for the first time since August 2009 as it dropped from 182.5 to 180.4 points – a 1.2 percent loss. This development goes to show that the economic crisis is far from over.

And yet there is light at the end of the tunnel. "The improved lending conditions have caused the transactions market to revive, which resulted in larger deals during the first quarter of 2010 and the biggest quarterly turnover in two years," concluded Hettrich. "Demand for office floor space appears to be stabilising gradually, and rent rates on the residential real estate markets of many conurbations have begun to perk up. So a successful comeback of the real estate economy seems like a foregone conclusion – there is just no telling when we will see it."

Source: Ummen Communications

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