King Sturge Real Estate Economy Index: High spirits in the real estate business (DE)

Sentiment in Germany's real estate industry is surging in tune with the optimistic data of the national economy. Unsurprisingly, the monthly King Sturge Real Estate Economy Index returned another increase for the poll-based Real Estate Climate in its July survey as it rose by 6.4% to an absolute score of 110.7 index points (up from 104.0 last month).

This outcome matches almost exactly the figures that the Real Estate Climate reported at the very start of the survey in January 2008.

Today's positive sector ratings are mainly driven by the Investment Climate, which at 121.6 points reached its highest level in the history of the index (117.0 the previous month). This, the indicator for acquisition and investment decisions returned its fifth positive rating in as many months.

For the first time since mid-2008, the more or less 1,000 market players regarded the market prospects for floor space demand and rent rate development with optimism. The Rental Income rose from 91.6 to 100.1 points, with the 100-point threshold representing a majority of positive votes.

Aside from the sentiment indicators, July also saw the Real Estate Economic Situation – an index based on the statistical analyses of DAX, Dimax, ifo Business Climate, and interest rates – regain the level of January 2008. Having softened slightly for two months, it showed a 8.6% growth in July by scoring 193.3 index points (compared to 178.0 the month before).

"Quite evidently, market players are very optimistic again," said Sascha Hettrich, Managing Partners of King Sturge Deutschland, as he commented the trend.

"They are convinced by now that the crisis is not just overcome, but that the real estate economy will emerge from it reinvigorated. There is almost no other way to explain the just about euphoric sentiment."

While soaring, Office Climate still voted negative by majority of respondents
The euphoria now rampant in the real estate economy also characterized the segment climates. Indeed, at 95.3 index points (up from 83.5 last month), the Office Climate remains the only one still below the 100-point threshold at this time. Yet the surge by 14.1% does signal that office properties are regaining their importance as an asset class.

Then as now, though, the Residential Climate takes the lead. Rising from 146.4 to 150.4 points, it set a new high-water mark, the highest since the start of the survey in early 2008. The Retail Climate, irrespective of its latest 0.2% slip, has been above the 100-point mark for the fourth consecutive month. It clocked 109.9 points in June and 109.7 in July.

By contrast, the Industrial Climate showed a stormy growth by 8.5% as it scored 104.8 points (up from 96.7). Now in the survey for its second month, this index for industrial and logistics real estate received a positive score from the majority of respondents.

Hettrich cautioned: "Despite the excellent performance of the King Sturge Index, the markets continue to show a modicum of reticence along with the admittedly bullish confidence. This is particularly true for the letting markets in the office and retail areas.

"If, however, the macro-economy was to develop as favorably as currently predicted, it would also boost the commercial letting markets. And if this came to pass, it would confirm once again that the real estate economy responds to economic changes with a time lag. It was caught up comparatively late in the crisis – and now manifests a corresponding delay as it emerges from it."

Source: King Sturge

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