This moderate 2.6% decline is mainly explained by losses of the Rental Income Climate. After climbing by 10.0% as late as December 2009, the Rental Income recently dropped by 8.1% to 69.4 points (down from 75.5 points the month before).

It means that the polled real estate experts anticipate a regressive floor-space demand and less development potential for rent rates in the year just started. The Investment Climate, being the second indicator of the Real Estate Climate, had continued on its steady growth course, rising by 2.3% to now 97.2% (compared to 95 percent the previous month). In other words, the sentiment in regard to acquisition and investment decisions approaches a balanced ratio of 100 points, having worked its way back up from the low-point of 31.8%in December 2008. These are the findings of the January poll that the independent consultancy firm of BulwienGesa AG conducted on behalf of King Sturge among 1,000 market players.

“The real estate economy – and specifically the tenant markets – tends to lag behind the general economic development by as much as six month or even a year,” elaborated Sascha Hettrich, Managing Partner of King Sturge Deutschland. “With this in mind, it is safe to assume that the then-as-now very slow pace of the overall economy has finally reached the basis of the real estate economy, complete with its negative ramifications, even if these involve only the floor space demand and the rent rate development. To be sure, the two sub-indices for Rental Income and commercial/office floor-space share a slightly regressive tendency so that the regressive overall tendency must be contextualised with the rather poor January performance.”

The deterioration of sentiment thus relates to the Real Estate, Rental Income, and Office Climates. Among the segments, the Office Climate showed the most volatile response. After going up by 9.0% as recently as December 2009, it dropped by a substantial 8.7% down to 61.1 index points in January 2010 (from 66.9 point the month before).

The polled market players expect vacancies to increase and office floor space demand to flag. The Retail Climate reflects the uncertain development on the job market as it registered only a modest 1.8 % gain up to 87.2 index points (last month: 85.7). This makes residential real estate – just like last year – the only segment with a positive majority sentiment, even if it only increased by 0.9%, from 129.6 points last month to 130.8 points this month.

“Despite the current dip of the Real Estate Climate, there is justified hope that the positive trend of the Investment Climate will continue,“ Hettrich went on to say. “Because the macroeconomic parameters of relevance for the real estate economy, including interest rates, Dax, Dimax, and ifo business climate, have proven stable notwithstanding the persistent slow-paced growth.”

Returning a 3.8% increase, the Real Estate Economic Situation, an index based on the statistic evaluation of the macroeconomic data, actually grew faster in January than it did the month before, climbing from 154.1 up to 159.9 index points. It has thereby pulled even with the level of August 2008 or the end of 2004. Hettrich concluded: “In a word, it is hard to see a reason anymore why Germany’s real estate markets would crash.”

Source: KIng Sturge