King Sturge Real Estate Economy Index: Real estate climate back on the upswing

In May, the survey-based Real Estate Climate of the monthly King Sturge Real Estate Economy Index rose to its current level of 55.6 points, having experienced a momentary setback the previous month. This equals an 8.2% improvement from the April figure of 51.4 points. The improved mood in the real estate industry is reflected in all of the indicator values, which rose in sync for the first time this year.

Having shown scepticism particularly in regard to the Rental Climate as recently as April, the real estate experts raised their expectations in May as far as the development of rent rates and rental income go as well as for the willingness of investors to commit themselves. Accordingly, the Rental Climate climbed by 9.2 percent to 54.8 points (compared to 50.2 points the previous month). The Investment Climate rose for the fifth consecutive time, and now stands at 56.4 points (previous month: 52.6 points). This is the finding of the May poll that the independent consultancy firm of BulwienGesa conducted on behalf of King Sturge among 1000 real estate experts.

"It is yet too early to say whether this represents a shift in trend, but if nothing else, it clearly checks the downturn and signals a reversal in the growth direction," said Sascha Hettrich, Managing Partner of King Sturge Deutschland. "Similarly, it remains to be seen in the months to come whether we are looking at a sustainable development or just a brief interim surge." To be sure, the renewed modest increase for the Real Estate Economic Situation – which is based on macro-economic data – justifies a cautious optimism.

For the Real Estate Economic Situation, representing the statistical analysis of DAX, ifo, DIMAX, and interest rates, rose from 121.9 points in April to 127.3 points in May, which translates into an increase of 4.4%. According to Hettrich, the moderate inflation rate, the price drops for commodities and energy, the government stimulus packages and the historically low ECB prime interest rate combine into favourable parameters for consumers, investors, and ultimately for the performance of the economy as a whole.

It is not just the overall Real Estate Climate that received better ratings, but the individual segments, too. At 10.2%, the Office Climate claimed the highest gain. At currently 33.3 points (previous month: 30.2 points), it continued to linger on a low level though, even as it set a new high-water mark for this year. The retail segment cleared the mark of 56.3 points, which is more than any rating seen since September 2008. Then again, it remains below the 100-point threshold that represents a balanced relationship of scepticism and an optimistic outlook. Residential real estate clocked 110.2 points (compared to 102.4 the month before) and remains not just the most stable real estate segment of all, but also shows a clearly positive tendency.

The low level of each indicator in absolute terms mirrors the latent risk potential still characterising the market. Then again, the renewed upward push of climate values and Real Estate Economy Index does suggest that we are past the rock bottom stage. "Now is the time to take advantage of the positive situation to consolidate and re-align the present business strategies. It is the only way for any of us in the real estate industry to emerge revitalised from the crisis," said Hettrich.

Source: King Sturge

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