King Sturge Real Estate Economy Index: Sentiment remains sunny (DE)

The high-flying sentiment in the real estate industry persists according to the August survey for the King Sturge Real Estate Economy Index, which is polled monthly.

Having gained another 8.6% and climbing to 120.2 index points, the poll-based Real Estate Climate achieved its highest score ever since the survey started in January 2008. While the previous month's score still stood at 110.7 points, it had already crossed the 100-point mark that signals that the majority of the 1,000 market players polled showed a positive assessment of the market parameters. The growth of the Real Estate Climate in August was based in equal parts on the development of investment and income opportunities.

The Investment Climate, indicator for acquisition and investment decisions, rose by 8.6% to 132.1 index points (up from 121.6 last month). Similarly, expectations in regard to the development of rents and revenues, which is expressed in the Rental Income, increased by 8.6%, reaching a score of now 108.7 points (100.1 the previous month).

"For the time being, we are seeing the fastest growth since the nation's reunification," commented Sascha Hettrich, Managing Partner of King Sturge Deutschland. "Among other sectors, the construction industry has re-emerged as a growth driver. Following the harsh winter, builders are catching up on production backlogs."

Yet Hettrich warns: "A word of caution against unchecked buoyancy is in order, though. The risks of an economic setback and new upheavals on the financial markets should by no means be underestimated."

Faith in office real estate restored
Market players returned positive ratings for all of the sub-segments in August. Among these segments, the Office Climate registered the highest increase at 11.4% as it climbed to 106.1 index points (95.3 the previous month) and thus to its highest score since March 2008. It appears that the very segments deemed problematic during the crisis have moved back into the focus of investor interest.

A case in point, the Industrial Climate showed a robust 10.9% gain, and achieved 116.3 index points (last month: 104.8). The Retail Climate, returning a score of 122.1 (up from 109.7), has been in the three-digit range for five consecutive months now. As in the foregoing months, residential real estate retained its uncontested lead position in August. Indeed, at 152.4 points the Residential Climate reached another all-time high (up from 150.4).

The positive trend in sentiment throughout the real estate economy reflects the macro-economic indicator of the Real Estate Economic Situation. This index, which is based on the macroeconomic data of DAX, ifo, DIMAX, interest rates and government bonds, perked up by a modest 1.5% (196.1 points, compared to 193.3 the previous month), and more or less regained the score it showed in early 2008.

Since financial and credit industry are closely intertwined with the real estate economy, Hettrich remains wary of considerable risks that linger irrespective of the blatant optimism. "Most experts are convinced that the recovery will hardly continue at this breakneck speed, and that the economy might indeed cool off during the second semester. So there is ample reason to proceed with caution even if another collapse no longer seems likely. Above all, there is the fact that the economic stimulus plans are about to expire. Yet assuming the slowing economy will not slide back into a recession, there is a very real chance that we will see a robust growth extend into the coming year."

Source: King Sturge

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