King Sturge Real Estate Economy Index - The Apocalypse has been Called off

While having slowed its pace, the upward trend of the King Sturge Real Estate Economy Index continues. This is the finding of the August poll among roughly 1,000 market players. The positive sentiment is buoyed both by the poll-based Real Estate Climate index and by the Real Estate Economic Situation index which is based on hard economic data. For the ninth consecutive time, the Real Estate Climate reported a gain, this time by 2.1 percent, from 63.3 index points to 64.6 points. What makes the increase such a modest one is the minimal growth of the Investment Climate, the indicator for investment and purchase decisions, which rose by just 1.8 percent to 71.4 points (up from 70.2 points last month). The Rental Climate, the second sub-indicator of the Real Estate Climate rose by 2.7 percent to 58.0 points (up from 56.6 the previous month) and suggests that, while rent hikes may be an unrealistic proposition at the moment because of the time lag of the recession, investment opportunities do seem to harbour a certain potential. Parallel to this, the stats-based Real Estate Economic Situation maintained its upward momentum, advancing by all of 3.00 percent from 128.8 points last month to 132.7 point in August. The King Sturge Real Estate Economy index is compiled by the independent consulting agency BulwienGesa AG once a month.

Among the segment indicators, both the Office Climate (up by 2.1 percent to 44.1 index points) and the Retail Climate (up by 5.9 percent to 64.9 points) scored gains once more. Although the Residential Climate yielded slightly by 0.7 percent as it slipped from 116.2 down to 115.4 points, housing remains the only segment above the reference line of 100 points. This means that the majority of real estate experts rate both the current situation and the outlook on the housing market as positive.

“The anesthetizing effect of the steep economic dip is beginning to wear off in the real estate industry. Even if it is too early to speak of lively business activity, larger deals here and there and noticeably higher transaction volumes have brought the investment market back to life in recent months,” said Sascha Hettrich, Managing Partner of King Sturge Deutschland. “Even if some experts chose to declare the recession ended overnight, as it were, because of 0.3 percent economic growth during Q2, this does not mean that the German economy is about to go through the roof. Rather, we ought to prepare ourselves for an extended recovery period.”

Following minor losses in the foregoing months, the development of the Real Estate Economic Situation was back on the upswing with its 3-percent growth. Just like the others, this indicator suggests a slow, if steady, recovery of Germany’s real estate business. In fact, both Real Estate Climate and Real Estate Economic Situation indicate that the ongoing economic cycle will not peak before 2013. “Having said this, the chances for a further improvement of sentiment are realistic, and this will in turn precipitate corresponding long-term effects in the non-monetary economy,” Hettrich went on to say.