Harbingers of doom depress German real estate sector

Germany's real estate professionals are becoming increasingly sombre just as Europe's largest economy appeared to be getting back into its stride and was attracting large-scale foreign investment after years in the doldrums.

King Sturge's polled-based Real Estate Economy Index - which consists of components measuring the current business situation and expectations in Germany - dropped to an all-time low of 169.2 index points in July. The previous month it registered 176.4 points, though the index has been moving downward all year.

The July edition of the survey found that confidence within the German property sector at the start of the second half of 2008 has dropped markedly. King Sturge reported a score of 90.8 points in the expectations element of its Real Estate Economy Index, compared to 101.3 points the previous month and the threshold figure of 100 points.

'New harbingers of doom in conjunction with the financial crisis, the soaring oil price, and the economic lull in the US as well as in some of the neighbouring European countries - all this has rained on the parade of real estate professionals in July,' said Sascha Hettrich, managing partner of King Sturge Deutschland.

In a statement, King Sturge said market participants were showing only a limited willingness to invest in light of the fast cooling economic prospects. Accordingly, the investment climate dropped by 16 percent, from 82.2 down to 69.2 index points. The second sub-indicator of the Real Estate Climate, the Rental Income, dropped slightly from 121.7 down to 114.1 points. Nonetheless, King Sturge said, the market participants continue to see a certain development potential.

'The repercussions for the real estate industry have begun to be clearly felt on the transaction market. Even on the letting markets in the office and retail business segment the air is getting thinner.' Even the residential market has ceased to be a safe haven, Hettrich said.

'Having said this, I should like to add all the same that this not the time for doomsday tales. In spite of the pessimistic mood swing, neither economic research institutes nor business interest groups are expecting Germany to slide into a recession,' he noted. 'After all, a downturn is hardly the same as a crash.'