King Sturge: German gloom deepens, Czech market stable

Sentiment in Germany’s real estate market deterioriated further in August compared with July, according to King Sturge's latest monthly survey of 1,000 market professionals.

The Real Estate Economy Index - which consists of components measuring the current business situation and expectations in Germany - dropped to a new low of 158.8 points from 169.2 points in July and 176.4 points in June. The Investment Climate index, which measures companies' willingness to invest, fell to 57.9 points in August from 69.2 points in July, while the Rental Climate index sank below the threshold of 100 points for the first time to 98.1 points from 114.1 points, a decline of 13.5%.

'The mood in the real estate economy has cooled off further in August, and noticeably so,' said Sascha Hettrich, managing partner of King Sturge Deutschland. 'This comes as no surprise, as the macroeconomic decline has become all too obvious. There is the very real danger that Germany's economy, following a negative growth phase in Q2, may continue to shrink in Q3. If so, you could say that Germany might slide into recession, as the term is commonly understood.'

However, Hettrich said there was no need to 'paint an unnecessarily bleak picture,' pointing to the continued growth in the number of new jobs and a stabilising inflation rate as oil and commodities prices fall. The German real estate market, he said, was facing 'nothing worse than a downturn, and by no means a nosedive.'

King Sturge expects the Czech market, on the other hand, to perform better than the EU average. In a separate research report, the consultant said that although transactional activity had slowed down in the first half of 2008 and yields increased as a result of the credit crunch, the overall picture was stable.
The supply of modern office stock in Prague and other regional cities has grown 'dramatically' and although the vacancy rate is expected to increase to 8%, rents are also seen rising slightly. Rents in the logistics sector are expected to fall slightly, but King Sturge remains positive about the further development of the market.

In general, King Sturge expects prime yields in the Czech Republic to increase by 25 to 30 basis points with secondary stock being more affected by the downturn and yields in this category moving out by 50 to 150 basis points.