GERMANY- German investor sentiment in real estate has plummeted and is paralysing the industry, consultancy firm King Sturge has claimed, as economic data continues to fall.
The King Sturge Real Estate Economy index - which concentrates on the current business situation and expectations and is based on interest rates and statistical ratios like the German stock index DAX - plummeted by 9.3% to 136.7 points last month compared to 150.7 points in October.
BulwienGesa AG, an independent market research company commissioned to regularly interviews 1000 industry players, found in just five months the mood of respondents had dropped by 50 index points.
"Market activities have been reticent to say the least. You hardly need a crystal ball to divine that the year 2008 is over, as far as business goes," said Sascha Hettrich, managing partner of King Sturge Deutschland.
"Major deals are probably not to be expected anymore, to say nothing of large-scale transactions. What is more, many real estate projects have been put on the back burner or shelved altogether."
Invest Climate, an indicator for investment and purchase decisions, hit a new record low at 35.7 points in November compared to 41.3 points the month before, suggesting no major transactions have recently taken place.
King Sturge suggested stable cash flows and good refinancing options caused the ‘Residential Climate' to barely decline between October and November, however increased vacancy rates, consumer skepticism and regressive consumer spending have produced caution ratings in the commercial, office and retail sectors.
Commenting on the effects that redemptions from German open-ended funds (GOEFs) have had on the German real estate market, Hettrich said: "It is a limited effect but you can see an effect. Half of the players are not acting at the moment."
"For the ‘closed' open-ended funds it's a matter of time," he added.
The high level of redemptions in September 2008 has so far forced 12 GOEFs to close.
The market in 2009 is expected to start slow before there are any clear signs of recovery, said the consultancy.
According to Hettrich, however, the economic aid program launched in November has "earmarked funds for additional investments in infrastructure and building redevelopments."
"It is definitely a positive signal for the construction and real estate industry," he added.
He claims there are a number of pension funds, sovereign wealth funds, insurance companies and international buyers, especially in Spain, still buying into Germany's real estate market.
King Sturge is one of Europe's largest real estate consultancies and recently expanded its presence in Germany with offices in Frankfurt am Main and Berlin.
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