King Sturge Real Estate Economy Index: Euro Crisis Dampens Spirit of Real Estate Economy

The debt crisis in Europe is impacting Germany’s economic growth. Sentiment is deteriorating in the German real estate industry, too. In September, the poll-based Real Estate Climate of the King Sturge Real Estate Economy Index slipped for the second month in a row, down to now 126.3 index points (previous month: 135.0). The clear drop by 6.4 percent is actually steeper than the one in August, and has effectively checked the lateral movement of the sentiment indicator. The decline of the Real Estate Climate in September is based primarily on the development of the Investment Climate, which fell by 7.4 percent and dropped to 126.9 points (from 137.1 last month). In addition to the willingness to invest, the more than 1,000 market players polled also took a sober view of rental and income growth: The Rental Income sank by 5.5 percent to 125.6 index points (from 132.9 the month before).
“The real estate economy, which for the past months had stood its ground against the general deterioration in sentiment in the wake of the Euro crisis, is finally feeling the effects of the debt disaster as even the market players in our industry are losing heart,” commented Helge Scheunemann, Head of Research Deutschland at Jones Lang LaSalle. “The sense of unease is plausible not only because the macro-economic parameters in Germany have noticeably deteriorated, but also because the experts are divided in their predictions regarding the further economic trend.”
Office Climate Suffers Steepest Losses
For the second consecutive time, assessments deteriorated for all real estate segments. At -10 percent, the Office Climate registered the steepest losses and dropped from 124.5 to 112.1 index points. While the sentiment did remain in the positive range, the assessments regarding office real estate dropped even faster in September than the month before (-8.6 percent). The Retail Climate decreased by 4.9 percent to 125.7 index points (previous month: 132.9). Market players once again rated residential real estate with the highest score. Yet even the Residential Climate slipped by 1.8 percent to 162.4 points (down from 165.3 the previous month).
Scheunemann commented: “Subject to a certain lag, the effect would eventually impact the commercial real estate economy, too. Like any other industry, the latter therefore needs to get used to the idea that the markets are likely to cool off sooner or later. Events on the rental markets as well as on the transaction market could thus veer from their auspicious growth course.”
September also saw the macro-economic Real Estate Economic Situation Index – based on the statistical evaluation of ifo business climate values, DAX, Dimax, interest rates and government bonds – descend by 3.3 percent to 205.5 points (previous month: 212.5). “That being said, there is no need for pessimism,” said Scheunemann. “The real estate economy is, not least because of the latest financial crisis, competitively positioned and need not worry – at least not for the time being – either about another credit crunch or about devaluation tendencies.”