King Sturge Real Estate Economy Index: Starting off 2010 on an Optimistic Note

The December survey of the monthly King Sturge Real Estate Economy Index reports a considerable, across-the-board upturn of indicators – including the subjective sentiment barometers along with the macro-economically driven Real Estate Economic Situation. For instance, the poll-based Real Estate Climate gained by 6.6 percent in December, climbing from 79.8 to 85.1 index points. This means that the sentiment rating of the real estate industry has doubled in the course of 2009 (year-end figure 2008: 42.2 points). The latest rise is powered mainly by the Rental Income which grew by 10.0 percent and now stands 75.5 index points (compared to 68.6 last month). The real estate experts participating in the survey believe that 2010 will bring a heightened floor space demand and more dynamic rent rate development. The Investment Climate – that is, the second sub-indicator of the Real Estate Climate, metering the sentiment in regard to purchase and investment decisions – rose by a moderate 4.0 percent to 95.0 index points (previous month: 91.4). These are the findings of the December survey among roughly 1000 market players that the independent market research institute of BulwienGesa AG conducted on behalf of King Sturge.

Notwithstanding the clearly brightened mood, the crisis is far from overcome. “Economic forecasts for 2010 are anything but euphoric,” said Sascha Hettrich, Managing Partner of King Sturge Deutschland. “Word has it that the economic recovery will progress haltingly. Chances are that the financial markets continue to harbour incalculable risks, and new trouble is brewing on the labour market.
That said, there is ample reason to get up the high hopes and to face 2010 with optimism,” Hettrich went on to say. “After all, we are expecting a modest recovery of the office markets, which bore the brunt of the recession. Also, it clearly manifests itself in the ongoing stabilisation both of the subjective sentiment indicators polled among market players – specifically in regard to the office climate – and in the rise of the Real Estate Economic Situation which is based on macroeconomic facts.”

Across-the-board stabilisation of indicators during the second year of the economic crisis is mirrored in each real estate segment. The Office Climate reported the highest gain at 9.0 percent as it climbed to 66.9 index points (up from 61.4 last month). In other words, it nearly tripled within a year’s time. In December 2008, the office markets were the ones hardest hit by the economic and financial crisis, plummeted down to 26.1 index points. In 2010, market players expect to see a more lively demand and a slower rise in vacancies than initially assumed. Still, the current level is low and the market situation remains precarious.
Retail real estate, too, manifested a higher gain in sentiment as it moved from 80.5 up to 85.7 index points in December 2009. Weighing in at 129.6 points, residential real estate represented the one sub-market with the highest absolute rating, just like in previous months (e.g., 124.5 in November).

The Real Estate Economic Situation, which is determined through statistical analysis of the macroeconomic factors of DAX, ifo, DIMAX, and interest rates, grew by 2.9 percent in December, up from 149.7 to 154.1 index points. This means that the Real Estate Economic Situation is back to the level of September 2008, the months in which the collapse of Lehman Brothers greatly intensified the economic upheavals. Hettrich commented: “For the time being, all we can do is to keep watching it germinate like a very tender shoot.”