Real estate market players are facing the new year with plenty of optimism. Although the sentiment in the industry had suffered a slight damper toward the end of last year, the survey-based Real Estate Climate of the monthly King Sturge Real Estate Economy Index returned a new high-water mark in its latest January poll among 1,000 market experts.
A 5.2% increase propelled it to its current level of 141.8 index points (previous month: 134.8), more than compensating for the slight dips of recent months. The new surge is riding the wave of success reports from the letting and transaction markets. The Rental Income, for instance, which indicates expectations for rent and income performance, rose by 6.4% to 137.7 index points (up from 129.4 the month before). The Investment Climate, reflecting the sentiment concerning acquisitions and investments, climbed from 140.2 to 146.0 index points.
"The transaction markets have clearly revived and already regained their pre-crisis levels," observed Sascha Hettrich, Managing Partner of King Sturge Deutschland.
"Even the prospects at the real estate economy basis are comparatively favourable for 2011. Purchase prices and rent rates on the commercial real estate markets show a stable tendency. The one thing missing are premium properties, at least in the prime locations of Germany's conurbations that are so much in demand. Given the high pressure to invest, e.g. among institutional investors, a certain trend toward secondary locations is beginning to emerge, and depending on the conditions of a given micro-location, these are not necessarily less attractive than the preferred core real estate."
Gap between segments is closing
At 8.5%, the office segment scored the heftiest gain among the sub-segments. At the moment, it stands at 134.8 index points (124.2 the month before), and thus made up for the faith lost in the wake of the financial crisis. At the same time, the divergence among the other segments is diminishing. The Office Climate read 127.6 points in January (previous month: 129.4), the Retail Climate 140.2 points (previous month: 135.4). Once again, the Residential Climate took the lead among the segments with 161.7 index points (up from 159.9 points in December). The majority of market experts rated all of the sub-segments as positive, and this verdict translated into a value clearly above the 100-points threshold.
Macroeconomic real estate economy situation keeps rallying
The Real Estate Economic Situation, an index based on the evaluation of ifo business figures, Dax, Dimax, and interest rates, continued its steady ascent that started in April 2009, even if its momentum appears to have slowed. Following a 1.5% increase, it just clocked 209.0 index points (compared to 205.9 the month before).
Notwithstanding the great status quo, Hettrich warned: "This industry has never been immune to setbacks. The then-as-now fickle financial markets might experience new turbulences at any moment, not least because a lasting solution to the sovereign debt crisis of the countries on the periphery of the euro zone has yet to be found.
"Simultaneously, the hefty price hikes for commodities and energy have generated certain inflationary tendencies, which for the ECB will sooner or later table the issue of whether or not to raise the interest rates. For the macroeconomic development, and thus for the capital-intense real estate industry more than for other sectors, these parameters harbor considerable risk."
Source: Flaskamp Ummen Communications