King Sturge Real Estate Economy Index: Sentiment as buoyant as before the credit crunch (DE)

  • Willingness to invest continues on high level
  • Index expanded to included industrial real estate
  • Real Estate Economic Situation Index drops for second consecutive time

The real estate industry is as confident as it was before the onset of the economic and financial crisis. The poll-based Real Estate Climate of the King Sturge Real Estate Economy Index, which is determined monthly, rose by 4.9 percent in June. At 104.0 index points (up from 99.2 the previous month), it reached its first record peak since March 2008.

The crossing of the 100-point threshold suggests that the majority of the 1000 market players participating in the poll take a positive view of the real estate market. The growth of the real estate climate is rooted in the development of its sub-components Investment Climate and Rental Income. While the Investment Climate – indicating the inclination to buy or invest – has stabilised in the three-digit range since March of this year and just reached a new high-water mark at 117.0 points (up from 111.9 in May), the user demand and rental growth reflected in the Rental Income sub-index still draws a slightly negative majority vote. That said, the market players did return a higher score for it in June, causing it to perk up by 5.3 percent (from 87.0 points in May to 91.6 points in June).

"The real estate economy currently benefits from the noticeable, if reticent, general economic recovery," elaborated Sascha Hettrich, Managing Partner of King Sturge Deutschland. "Despite the persistent risks on the currency and financial markets, the signs – at least in Germany – are pointing toward an upturn again. It is now of the essence to sustain this confidence and not to have the waters muddied by yet another loss of faith."

Industry and Logistics Real Estate Captured as Additional Asset Class
Starting with the June survey, the King Sturge Real Estate Economy Index will also cover estimates of the situation in industrial and logistics real estate while excluding the heavy industry segment. This segment, in US parlance referred to as "light industrial," has a market value of 1.1 trillion Euros in Germany, and includes specifically transformation, production and logistics real estate, multi-tenant properties/ trading estates as well as the research and development sector. "The idea behind capturing the industrial climate is to face up to the significance of this asset class and to contribute to the ongoing push for more market transparency in the real estate industry," said Hettrich. In June, the Industrial Climate weighed in at 96.7 index points, that is, halfway between the Office Climate and the Retail Climate. At 83.5 points (81.5 last month) still considered the riskiest segment, office real estate did score a modest 2.5 percent gain. The Retail and Residential Climates manifested a bullish growth of 6.9 and 6.1 percent, respectively, as they continued their positive performance at 109.9 (up from 102.8) and 146.4 (up from 137.9) index points, respectively.

Macroeconomic Indicators Continue to Deteriorate
Notwithstanding the recent optimism, it is too early to close the book on the economic crisis, or so the Real Estate Economy Situation index suggests, which is based on the macroeconomic data of DAX, ifo, DIMAX, interest rates and government bonds. In face of the lingering national crises and the Euro crisis, it has slipped for the second month in a row and reported a score of 178.0 points (compared to 180.4 last month). Commented Hettrich: "There is ample cause to be doubtful about the thrust of the economic development even in the second semester. Yet I am actually convinced that the real estate industry's optimism is justified. For, unless outside calamities blur the picture, the current status quo does offer a sound basis for a sustained growth of the industry.

Source: King Sturge

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