Published on 19/09/2008

The monthly calculated ‘Ifo Business Climate Index’, known in Germany as a prominent instrument for business-cycle analysis, shows for August 2008 the third decline in succession.

The monthly calculated ‘Ifo Business Climate Index’, known in Germany as a prominent instrument for business-cycle analysis, shows for August 2008 the third decline in succession. The current business situation in Germany has clearly been assessed more unfavourably than in previous months. In addition, firms expect a further negative business development in the coming half-year.

The mood in the German real estate market, as the second largest in Europe, is still upbeat, although market expectations for 2008 did not come up to the level of foregoing years (especially 2007) and had anticipated a more cushioned outcome.

The subprime crisis that had its outset in the US, has so far not affected the German real estate market to the predicted extent that other European countries such as Spain, Ireland and Great Britain have experienced. Additionally, property markets in the US and Germany differ substantially, e.g. the granting of loans for buying real estate is more strictly handled in Germany, whereas lending without equity is common practice in the US.

Fixed interest rates of up to 15 years in Germany, the absence of an upswing of prices for real estate like in other countries and the fact that no building boom has occurred (like in Spain) may be other reasons why the subprime crisis in Germany turned out to be less fatal.

However market conditions in Germany have worsened as investors just seem to wait for more favourable opportunities. The number and the volume of real estate transactions declined during 2008, almost by half, compared with top levels in 2007. Nevertheless experts do not fear a dramatic downturn of the German property market.

For investors the mature European real estate markets offer higher yields and currently appear to be more attractive than the less solvent and overheated emerging markets of cities like Bucharest, Kuala Lumpur or Shanghai. In these conditions the attraction of a rising rental market, long-term rental agreements and solvent tenants are crucial factors for the development of the market.

For several years before joining Moore Stephens, Thomas Ziegler was employed at Siemens Real Estate.

Thomas Ziegler,
Munich, Germany
thomas.ziegler@moorestephens.de