2008-10-01

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Germany |

King Sturge Real Estate Economy Index: The Crisis Germinates the Seed of Opportunity

Germany: * At 69.7 Index Points, Real Estate Climate Drops to Lowest Point this Year * Properties to be Had at Low Purchase Prices even now

In September, the international financial and loan crisis finally hit Germany. While the economic policy turbulences used to be primarily confined to the United States and some European markets such as the United Kingdom and Spain, the difficulties now extend to German companies, too. This is reflected by the pessimistic mood in the real estate industry – diagnosed by the King Sturge Real Estate Economy Index in its September survey among 1,000 market participants. The poll-based Real Estate Climate hit its lowest rating this year at 69.7 index points, undercutting the previous month’s figure of 77.5 by about ten percent. The Real Estate Economy, which is based on macroeconomic data mined every month, dropped from 158.8 points in August by a moderate 1.1 percent down to 157.1 index points.

“For the real estate markets, this means it will be impossible for them to steer clear of the slower economic situation and the expanding crisis on the global financial market,” said Sascha Hettrich, Managing Partner of King Sturge Deutschland. “The way that prices are currently adjusted in sync with the decline in demand – that is, parallel to the specific slowdown of each market – has almost textbook character. Real estate entrepreneurs therefore need to brace themselves for depreciations, too. The situation is further aggravated by the fact that it has become more difficult and more expensive to obtain (follow-up) financing.”

The mood in the real estate industry admittedly hit a new low-point, and yet this month’s drop of about ten percent turned out to be more moderate than that of August, when the Real Estate Climate plunged by 14.6 percent. The lull of the Real Estate Climate is based primarily on the negative investments climate, which represents the willingness to invest. The Investment Climate sank by 15.4 percent, from 57.9 index points last month down to 29 points at present, and thus illustrated the reticence of market players when it comes to new commitments. By contrast, the downturn of the Rental Climate, which functions as second sub-indicator of the Real Estate Climate, was modest at 6.7 percent. Here, the September index stood at 92.1 points (previous month: 98.7 points).
Market participants rated residential real estate as the most stable sub-segment. In face of the rising vacancy quota generated by bank mergers and insolvencies, the areas of retail and office are regarded with scepticism.
The real downward trend of the Real Estate Economy – based on the statistical evaluations of DAX, ifo, DIMAX, and interest rates – is actually minor, and contrasts with the mood prevailing in the industry. It dropped from 158.8 index points last months to 157.1 points this month.

“Investors with a high net worth should be able to derive major benefits from this development," predicts Sascha Hettrich. “Even now, you will already find real estate at more affordable purchase prices, as debt capital-oriented investors are increasingly forced off the market by liquidity bottlenecks. As usual, the crisis germinates the seed of opportunity.”

Sascha Hettrich for King Sturge Deutschland - 2008-10-01

Announcement by King Sturge Deutschland. The originator takes responsibility for its content.