King Sturge Real Estate Economy Index: Sentiment in the Real Estate Economy Takes Noticeable Dip

The turbulences on the world’s financial markets are leaving their marks on the German real estate economy. In August, the poll-based Real Estate Climate, which serves as a sentiment indicator, dropped by -6.2 percent to 135.0 index points (down from 143.9 last month). It represents the steepest decline during the past six months. The sentiment among the over 1,000 market players polled has thus returned to the level of December 2010. The dip in sentiments has been caused by both sub-components of the Real Estate Climate. For one thing, the Investment Climate, which reflects the willingness to invest, dropped to 137.1 points (previous month: 147.1). The Rental Income, which mirrors the sentiment regarding rental growth and income performance, decreased from 140.8 to 132.9 index points. This is the upshot of the August evaluation of the monthly King Sturge Real Estate Economy Index.

“In the wake of the latest turbulences on the financial markets, it comes as no surprise that the King Sturge Real Estate Economy Index has dipped,” said Helge Scheunemann, Head of Research Deutschland at Jones Lang LaSalle. “But that does not mean the index deteriorated as rapidly as could have been expected in response to the stock market crash. While the real estate industry may be impacted by the sometimes disastrous developments on the stock markets and currency fronts, the impact is not nearly as grave. After all, real estate markets may by all means benefit from the ongoing flight into tangible assets.”

Residential Climate Remains Stable
The downturn in sentiment is reflected in the commercial sector above all. The Office Climate dropped by -8.6 percent to 124.5 index points (last month: 136.1), whereas the Retail Climate yielded by -6.5 percent, and now stands at 132.2 points (last month: 141.3). The assessment of the residential segment, by contrast, is relatively unaffected by the general downtrend. The Residential Climate softened by -1.1 index points, and registered 165.3 points (last month: 167.2).

Scheunemann commented: “To be sure, the German economic powerhouse is still humming, but it has clearly lost momentum because the global economy has noticeably cooled off and the fact will impact the German export industry, or so the forecasts suggest unanimously. This will in turn have ramifications even for the domestic economy – and thus for each segment in the real estate industry.”

Even the Real Estate Economic Situation Index, , which is based on the macroeconomic data of DAX, ifo, DIMAX, interest rates and government bonds, reported a -3.4 percent loss in August, ending the month at 212.5 index points (last month: 219.9).