King Sturge Real Estate Economy Index: Sentiment in the Real Estate Economy Rallies despite Flagging Macroeconomy

While the macro-economy is currently levelling out on a high level, the real estate economy evidently ignores the fact. As a result, the survey-based Real Estate Climate of the monthly King Sturge Real Estate Economy Index gained 1.8 percent and climbed to 143.9 index points (up from 141.5 last month). This modest upward movement is fuelled mainly by the Investment Climate, which increased by 2.0 percent, and now stands at 147.1 points (previous month: 144.3). Apparently, the over 1,000 market players participating in the survey deem the investment decisions nearly as auspicious as those of February 2011, when the index peaked at 149.8 points. Similarly, the Rental Income, the second sub-indicator of the Real Estate Climate, which reflects the expected rent and revenue trend, registered an increase, and currently shows 140.8 points (previous month: 138.7). Given the oscillating upward and downward movement of the Real Estate Climate in recent months, the commenced lateral trend appears to stabilise.

“This comes as no surprise,” said Helge Scheunemann, Head of Research Deutschland at Jones Lang LaSalle. “On the one hand, the momentum of the global economy has slowed, causing the German export industry to cool off. On the other hand, the Euro crisis/ sovereign debt crisis, and the fact that the United States averted its insolveny at the last minute, as it were, have made the markets uneasy.” Scheunemann went on to say: “Notwithstanding the global uncertainties, Germany’s real estate economy remains in a sound condition. All signs suggest that the transaction volumes and the letting transactions will continue to boom. This goes to show that the German real estate markets benefits then as now from its robustness as an attractive investment location.”

Segment Scores Point Upward again
The sub-segments, too, benefit from the brightening sentiment among the polled real estate experts. The Residential segment scored the steepest increase, rising by 3.5 percent from 161.5 to 167.2 index points, and thus hitting a new high-water mark since the launch of the survey in February 2008. The Retail Climate also made substantial gains as it grew by 2.9 percent and ended July at 141.3 points (up from 137.4 points last month). Office real estate, by contrast, improved but modestly, climbing from 135.8 points to 136.1 month on month.

In keeping with the brightening sentiment in the real estate economy, the macro-economic Real Estate Economic Situation index, which is based on a statistical interpretation of ifo business climate values, DAX, Dimax, interest rates and government bonds, pushed upward, too. Then again, the modest increase by 0.05 percent prompted Scheunemann to observe: “The growth rates of the Real Estate Economic Situation have been slowing for some months. It seems that a lateral trend is developing for this index, as for the sentiment indices.” Scheunemann went on to say: “The next few months will show whether the real estate economy will actually set itself positively apart from the macro-economic development.”