Notwithstanding the upward trend of the German economy as a whole, the December poll for the King Sturge Real Estate Economy Index suggests that the sentiment in the real estate industry has cooled off slightly, making it the second month in a row that returned a lower score.
The survey-based Real Estate Climate dropped by 1.6% down to now 134.8 index points (previous month: 136.9). "The downturn is a little more pronounced this time than it was the month before, but the level remains high then as now," observed Sascha Hettrich, Managing Partner of King Sturge Deutschland.
"In December, the leveling out of the seeming euphoria of recent months is explained primarily by the decline in investment sentiment." Indeed, the Investment Climate dropped by 2.1%, from 143.2 down to 140.2 index points. Unlike last month's survey, December also saw a first downturn for the Rental Income. This second sub-indicator of the Real Estate Climate reflects the expectations of the more than 1,200 polled market experts in regard to user demand and corresponding rent rate development. The Rental Income cooled off by 0.9%, from 130.6 down to 129.4 points.
On the segment level, the majority of segments showed a slight deterioration of sentiment. The Retail Climate returned the steepest losses at -3.6%, dropping from 140.4 down to 135.4 index points. The Residential Climate declined by 2.8% to 159.9 points (down from 164.5 points the previous month), the Industrial Climate by 0.2% to 129.4 points (down from 129.6 points). This one segment that received an improved month-on-month score from the polled market experts was office. That said, the Office Climate, now standing at 124.2 index points (up from 123.6 last month), keeps showing the lowest index score among the segments.
"Despite the flagging euphoria in the real estate industry and the fickle international markets, the 'hard' macroeconomic facts keep rallying," stated Hettrich. The Real Estate Economic Situation index, based on the statistical analysis of ifo Business Climate, DAX, Dimax, and interest rates, grew by 0.6% in December, achieving a score of 205.9 index points (204.6 the month before).
Is the real estate economy facing a turning point?
Before the background of two consecutive dips in sentiment, the question presents itself whether a nascent shift in trend is manifesting itself, or whether the Real Estate Climate is 'merely' initiating a lateral movement.
Commented Hettrich: "At the moment, certain signs suggest that the sentiment is leveling out, which is an unavoidable and at times even sensible thing to do. After all, the Real Estate Climate climbed from one peak to the next between July and October 2010. An unchecked continuation of this surge would be less than sound. And even in December, the level of the Real Estate Climate has topped the level of January 2008. Moreover, the majority of market players have continued to award positive ratings to the Real Estate Climate with its sub-components Investment Climate and Rental Income, as well as to all the segment climates. To be able to say with any degree of certainty whether this does indeed mark the turnaround, we will have to wait and see what the coming months might bring."
Source: Ummen Communications GmbH