The real estate industry has begun to feel the full brunt of the international financial crisis. Thus, with the December returns now in from the 1000 market players in Germany who participate in the survey, the monthly King Sturge Real Estate Economy index shows just 40.7 index points in December (down from 48.2 points the previous month).
The unprecedented low point of the poll-based Real Estate Climate that is conducted by the independent market research company BulwienGesa AG can above all be blamed on the collapsing investment market. In analogy to the mood in the industry, the Real Estate Economy index based on hard economic data hit a new negative record as it dropped from 136.7 to 126.9 index points in December.
"The transactions volume is down to a minimum, with the real estate economy regressing to the level of 2002/2003," explained Sascha Hettrich, Managing Partner of King Sturge Deutschland. "It makes a person wonder how far we have to go yet before hitting rock bottom".
Truly new about the global ramifications of the crisis is the brisk pace of the plunge: While the mood among real estate players was still positive in June 2008 showing a Real Estate Climate of about 101 index points the expectations kept dropping steadily in the course of the second semester, and hit a mere 40.7 points in December 2008. Compared to the previous month, this translates into a 16% decline. The reason underlying the extreme low-point in mood is above all the powerful downturn of the Investment Climate, which dropped by nearly 18% from about 36 index points to 29 points. Thus, the willingness to invest is getting close to zero in December. The regression of the Rental Climate, which forms the second sub-index of the Real Estate Climate, turned out to be more moderate at 10%. It hit a specific value of 48 points in December.
Then as now, market participants consider residential real estate the most stable segment. In regard to the development in the course of 2008, residential real estate proved to be the least risky sort of investment owing to its low volatility rate. By contrast, office and retail real estate are characterised by a high-level volatility, and in December their mood ratings responded with severe losses to the deterioration of the overall economic situation.
The valuation of the market participants reflect the downturn of the Real Estate Economy, which derives from the statistical analyses of DAX, ifo, DIMAX, and key interest rates. This index dropped from 136.7 to 126.9 in December.
"The coming year is starting off on an ominous note: Every climate index value has been pointing downward for months," commented Hettrich. "The immediate effect of the crisis will be price adjustments and an in-depth restructuring of the market. High net worth investors, however, have ample opportunity to make interesting investments. Here, perfect timing is of the essence," Hettrich added.
Source: Business Network Marketing- und Verlagsgesellschaft