2008-08-22

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Germany |

(Press Release) Mid-Year Accounts: King Sturge Real Estate Economy Index Successfully Established as Industry Barometer

Germany: * Survey-Based Real Estate Climate Reliably Reflects Economic Reality * Extra Evaluation by Segment Shows Economic Worries, Especially in Regard to Office and Retail Real Estate

With its premier six-month term completed, the King Sturge Real Estate Economy index has proven to be a methodologically stable and market-affine instrument. The mood in the real estate industry reflects the economic reality. This is suggested by the high sense of correlation between the time series of Real Estate Climate and Real Estate Economy, as well as by their pronounced volatility. For instance, the volatility of the Real Estate Climate averaged 7.5 index points over the past six months, that of the Real Estate Economy 7.9 points.

“The King Sturge index has established itself as barometer of the German real estate economy within a very short period of time,” Sascha Hettrich, Managing Partner of King Sturge Deutschland commented. “The monthly index – this much is safe to say after the completion of its first semester – does reflect a realistic picture both of the mood and of the actual economic situation on the real estate markets.” When comparing the two data series, the correlation coefficient – which qualifies the statistical connectedness – equalled 0.79. Since the Real Estate Economy index is based on statistical data from the previous month, thereby generating a time lag vis-à-vis the survey-based Real Estate Climate, it makes sense to advance the industry mood by one period for the sake of comparison, thus bringing the correlation coefficient up to 0.85. In a sense, this approach demonstrates the prescriptive character of the King Sturge Real Estate Economy index. Then again, not until stats for a longer term – ideally for a complete economic cycle – are in will it be safe to say whether a statistically confirmed correlation does exist.

At the mid-year mark, the extra evaluation of the King Sturge Real Estate Economy index by types of usage has diagnosed a low-point in the mood scores of the office, retail, and residential segments. The verdicts of 1,000 polled market players drove the office and retail climate (84.8 and 88.2 index points, respectively) below the threshold of 100 index points By contrast, the residential economy proved to be the most stable one at 109.4 points. There, the more stable cash-flow and the high market viscosity keep crises from impacting rent rates and sales prices immediately.

While even the German real estate market has admittedly suffered a downturn, the dip was not nearly as dramatic as those in the United States or in Spain. “German real estate markets are soundly financed, report adequate rent returns, and are moreover considered realistically appraised,” Hettrich elaborated. “These parameters continue to be attractive and reliable for investors.”

Robert Ummen for King Sturge - 2008-08-22

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