Not surprisingly, the gloom in the real estate sector worldwide has now reached Germany, with a majority of participants now seeing the commercial property market as being in a downward phase, according to the RICS Global Commercial Property Monitor for the second quarter of 2020. The rental market index of the RICS monitor has now fallen to its lowest level since 2009.
According to Susanne Eickermann-Riepe, chairwoman of the board of RICS Germany, commenting on the results of the Global Commercial Property Monitor in an online briefing this week, "The down-turn has arrived in Germany, even if the German figures are still the best among the bad ones." The market for commercial property is still viewed as expensive, the demand is falling, while investors criteria are being revised upwards. The uncertainty about demand and the quality of future office space is giving way to the realization of a smaller need for space, she said. "A new cycle has begun. Now it is necessary to rethink business models, investment strategies, sustainability and the effect of investments.”
The COVID-19 pandemic is having a clear impact on sentiment worldwide, with all the RICS main sentiment indicators in negative territory. However, they have still not reached the lows recorded in the aftermath of the financial crisis.
The RICS analysis, which tracks feedback from tenants and investors, is based on the weighted average of feedback from the countries covered . This index value has fallen from -28 to -37 in the last three months. At a regional level, the sentiment indicator in Europe shows a marked deterioration from -14 to -36 compared to the first quarter. The slump follows a period of relatively stable results in Europe.
On a global level, 36% and 37% of respondents respectively expect rental and capital values in the mainstream asset classes to decline over the next twelve months.
In Germany, the rental market index "Occupier Sentiment Index (OSI)" fell from -17 to -36 points in the second quarter of 2020 compared to the previous year, as RICS further reported. This is the lowest result since 2009. 88% of those surveyed recorded a decline in demand for retail space in the second quarter, the worst quarterly result to date. The demand for office space also shows a significant decline, with 55% of the participants reporting negative developments. The demand for industrial space is more consistent, however, with respondents seeing hardly any changes in this segment.
The rental price forecast for the coming year is highly dependent on the sector in question, the study shows. For example, rents for retail space, hotels, offices in B-locations, student accommodation and apartment buildings are all clearly falling, to various degrees. At the same time, respondents expect rents for first-class industrial space to rise, and a slightly positive rental trend is also forecast for data centres.
The investment market index "Investment Sentiment Index (ISI)" slipped from -4 to -19 in Q2, with investment demand falling in all the sectors analysed, although the decline in industrial space is more moderate compared to the office and retail segments. As to capital value development over the coming twelve months, only first-class industrial properties and data centres show positive forecasts. In most segments, prices are expected to fall – with the forecasts for retail and hotels being particularly negative.
On the other hand, spurred by the Covid 19 pandemic, 89% of respondents expect that user requirements in the area of health and well-being at work will increase. But while on a global level, only one-third of those surveyed believe that tenants will be willing or able to bear the associated costs, in Germany the figure is 50%.
