The turbulences of the global economy involving Japan, the Middle East, and the euro are leaving their marks on the real estate economy, too. Accordingly, the poll-based Real Estate Climate for the March survey of the monthly King Sturge Real Estate Economy Index dropped by 2.9% from 144.6 to 140.4 index points. It was the first time this year that sentiment softened among the over 1,000 market players polled for the survey.
Nonetheless, the Real Estate Climate remains above its 2010 scores. The sub-indices that caused the Real Estate Climate to take a dip in March are the Investment Climate and the Rental Income. While the Investment Climate dropped by 2.4% to 146.2 index points (down from 149.8 points last month), the Rental Income lost by 3.4% as it fell to 134.7 (last month: 139.4).
"It is as obvious as it is plausible that a sense of unease has taken over for the time being," observed Sascha Hettrich, Managing Partner of King Sturge Deutschland. "Equally obvious, though, is that the disaster that struck the world's third-largest economy, while putting the damper on the ongoing boom, will not check it. Both the global economy and the German economy in particular are too resilient for that. Industrial companies and building contractors are rejoicing over a rising number of orders, jobs are being created and thus the real estate markets keep reviving."
In analogy to the development of the Real Estate Climate, all of the sub-segments show moderate losses. At the same time, the gaps between segments have begun to widen again. Specifically, the March scores are 127.3 index points (last month: 138.1) for the Industrial Climate, 131.1 points (last month: 137.1) for the Office Climate, and 140.8 points (last month: 142.2) for the Retail Climate. Residential real estate remained the most popular segment, showing a score of 162.8 points (down from 166.5 points last month).
Still, Hettrich deems this downtrend a temporary affair, arguing: "Meanwhile, transaction markets are showing dynamic growth again as numerous international investors in addition to domestic ones are looking for attractive and safe investments here in Germany. Commercial real estate markets, too, have rebounded, not least because companies built up a demand backlog over the past three years. Office rents are stable, vacancies are declining in many places, and the retail business will also benefit from the sound economic situation."
Growth of the macroeconomic Real Estate Economic Situation accelerates
In contradistinction to the ground lost by the sentiment index, the Real Estate Economic Situation index, based on the statistical analysis of ifo Business Climate, DAX, Dimax, and interest rates, grew by 1.8% in March, achieving a score of 213.4 index points (209.7 the month before). Indeed, the growth has actually accelerated since February, when it grew at a rate of just 0.4%. Then again, the latest development does not enter into the Real Estate Economic Situation except with a time lag. So one will have to wait and see how things develop in the coming months.
Hettrich concluded by predicting: "Despite all the skepticism concerning the ramifications of the crisis in Japan, it is with persistent confidence that the German real estate economy expects the market recovery to continue."
Source: Flaskamp Ummen Communications