King Sturge: Real estate climate suggests normalization of markets (EUR)

For the third time in as many months, the Real Estate Climate showed improvement, according to the King Sturge Real Estate Economy Index. It rose by 12.1% to currently 52.9 points, and thus exceeds last month's figure of 47.2 points.

As in January and February 2009, this development owes its momentum primarily to the positive view of the Investment Climate, which has signalled an increased inclination toward investments and transactions. According to the stats, the Investment Climate rose by 26.9 percent up to 51.4 points (compared to 40.5 the previous month). This is the finding of the March survey that the independent market research company BulwienGesa conducted on behalf of King Sturge among 1,000 real estate experts.

"Admittedly, many business experts keep revising their forecasts downward, some of them substantially so. Yet, first signs are indicating the formation of a stable basis and normalisation," said Sascha Hettrich, Managing Partner of King Sturge Deutschland. In his eyes, it is above all the stability of the brightening mood that has persisted for the past three month that suggests as much. Rising cap rates have caused some real estate markets to offer attractive market entry opportunities even now. "This development documents the slightly improved conditions for acquisition and investment decisions; even if the macroeconomic situation makes caution seem advisable, great opportunities to secure attractive investments present themselves especially now," Hettrich went on to say.

The second component of the Real Estate Climate, the Rental Income, remained virtually unchanged in March at 54.5 index points (compared to 54.1 points the month before). Despite the sustained brightening of the climatic statistics, the appraisal of the Real Estate Economy continues to linger on a low level.

Among the sub-segments, residential real estate proved to be the most stable sector – as it had in the foregoing months. For the first time since July 2008, the Residential Climate jumped the threshold of 100 points, at 101.5 points exceeding the February figure by 5.9%. Here, the expectations of the market players are dominated by positive prospects. Retail real estate reported the steepest upturn among the individual segments, rising by 18.1% up to 55.5 points. But even the office properties are perceived as more stable at 32.0 points (previous month: 27.8 points). Low as the figure may seem, there is a demonstrable increase in confidence.

"In stark contrast to the optimistic air of real estate experts, the data of the non-monetary economy continue to paint a different picture," said Hettrich. The Real Estate Economy, based on the statistical ratios of DAX, ifo, DIMAX, and interest rates, dropped by 3.4%, from 122.9 down to 118.8 points, the lowest level since 2000. Hettrich believes, however, that the most recent cut in the ECB prime interest rate might bring about an end to the market paralysis. "Just how and when the current upward trend in mood will evolve into a stable turning point remains to be seen in the months to come," Hettrich added.

Source: King Sturge

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