King Sturge Real Estate Economy Index: Sentiment in the Real Estate Industry Lingers on High Level

. In tandem with the positive economic forecasts for Germany, the sentiment in the real estate industry has climbed to a new all-time high. In the May survey for the monthly King Sturge Real Estate Economy Index, the poll-based Real Estate Climate registered a 3.0-percent increase in climbed from 144.6 to 146.3 index points. This trend is primarily borne by the Rental Income, which reflects rent rate performance and user demand. Following an increase by 2.3 percent, the Rental income now stands at 144.5 index points (up from 141.3 last month). The investment climate, which is the second sub-component of the real estate climate, remained stable at 148.0 index points in May (previous month: 148.1). Notwithstanding the confidence among more than 1,000 polled market players, there are manifest signs for stabilisation and a lateral trend. As it were, the upward momentum is slowing.

“The real estate economy benefits in no small way from the favourable macro-economic trend,” said Sascha Hettrich, Managing Partner of King Sturge Deutschland. “Sentiment remains on a high level, as the letting and brokering business is going very well indeed. Many companies have chosen this time to catch up on their floor space needs. And private investors, too, are increasingly committing themselves in real estate to be on the safe side with tangible fixed assets.”

Looking closer at the sub-segments shows that they have continued to move toward one another. The gap between segments is closing. As in the previous month, the Office Climate showed the fastest growth rate, gaining by 3.3 percent and clearing the mark of 140.4 index points (up from 136.0 last month). The Retail Climate slipped slightly by -1.4 percent down to 142.3 points (down from 144.4 last month) and is now more or less level with the Office Climate. Residential real estate continues to score the highest confidence vote. Following a marginal -0.1-percent decrease, it now stands at 166.6 index points (compared to 166.7 the month before).

In addition to the buoyant mood in the real estate industry, the hard facts stabilised as well. For one thing, the Real Estate Economic Situation, which is based on a statistical analysis of ifo Business Climate, DAX, Dimax, interest rates and bonds, rebounded after a decline in April. The 3.3-percent rise to 218.3 index points (211.4 the previous month) this month is to some extent explained by the switch of the ifo climate to a new base year. Without this shift, the increase would equal 0.6 percent.

Hettrich added a word of warning: “Even though all signs are set for growth, the lingering threats must not be underestimated. Then as now, the danger remains that the sovereign debt crisis might deepen into a currency crisis, which would deal a mortal blow to the economy. Unfortunately, a quick remedy to the crisis is nowhere in sight. So we can only keep hoping that the countries concerned will see a way to repay their enormous debts and thereby keep the situation on the financial markets from getting out of hands once again.”