King Sturge Real Estate Economy Index: Euphoria in the Real Estate Business Slackens Slightly

The persistent global uncertainties are reflected in the June evaluation of the monthly King Sturge Real Estate Economy index. Although the development in other Eurozone countries does not directly impact the German market, and while the domestic economy continues to grow, the sentiment among the more than 1,000 polled market players is flagging. The poll-based Real Estate Climate dropped by 3.3 percent to 141.5 index points in June (down from 146.3 the month before). This development must be blamed primarily on the Rental Income, which decreased by 4.0 percent to 138.7 index points (previous month: 144.5). The Investment Climate, the second sub-indicator of the Real Estate Climate, dropped from 148.0 to 144.3 points, suggesting that the investment demand is levelling out.

“Following a phase of euphoria, the real estate economy has returned to a slightly more reticent state,” observed Sascha Hettrich, Managing Partner of King Sturge Deutschland. “That said, the fundamentals are looking good. The robust boom continues, the interest rates remain low (for the time being), jobs are being created, and generate additional floor-space demand in turn. Despite the fact, Germans are known for their tendency to bicker and complain – even if the current bickering is justified by typically high ambitions on the part of the German market players.”

Segment Climates Deteriorate
In June, all of the segments received poorer ratings from the respondent market players than the month before. The Office Climate lost 3.3 percent, and now stands at 135.8 index points (previous month: 140.4). The Retail Climate registered a similar loss: Its score dropped by 3.5 percent to 137.4 points (previous month: 142.3). The Residential Climate, then as now the one with the brightest rating, declined by 3.1 percent, and at 161.5 index points (previous month: 166.6) slightly undercuts the level it showed January of this year.

In contrast to the flagging sentiment, the macro-economic Real Estate Economic Situation, which represents a statistical evaluation of ifo business climate values, DAX, Dimax, interest rates and government bonds, showed a 0.7-percent increase to 219.8 index points (previous month: 218.3). This means that the Real Estate Economic Situation virtually regained the level it had in early 2007.

With a view to the global markets, Hettrich ventured this prediction: “The important thing now is to keep the financial sector stable. Accordingly, giving Greece more time to resolve their structural problems lest the stability of the Euro be jeopardised is the proper thing to do. Anything else would imply that the banks might abruptly abort their strenuously regained willingness to lend. And this would impact even the German real estate economy.” Hettrich went on to say: “In the long run, however, Europe will not get around the introduction of clear regulations to achieve the necessary consolidation of her debt-ridden member states. The existing Maastricht criteria, in any case, have proven to be all bark and no bite.”