Sentiment in the German real estate market jumped noticeably, with the latest quarterly indicator coming from the combined JLL's German Real Estate Financing Index (DIFI) with research from the ZEW Leibniz Centre for European Economic Research increasing in Q1 for the third quarter in a row. This follows the collapse in the index last year, and brings it back to pre-Corona levels.
The index is still in a downward phase since 2015, but is now trending sharply upwards, with this the best reading since autumn 2019, according to Anke Herz, Head of Debt Advisory at JLL. Both the assessment of the financial environment as it is, and expectations for the coming six months, have shown improvement.
While Retail remains the 'problem child', the other four main types of asset use are in the plus. The Retail indicator was down 11.2 point on the 'current assessment' gauge and down 4.4 points on 'expectations', and is only topped in negativity by Hotels.
Although the hotel sector is still rated worse overall than the retail sector, and hotels are barely financeable at present, expectations have improved significantly. The majority of respondents now expect financing conditions for hotel properties to either remain unchanged or improve over the next six months.
The outlook for Offices is the most optimistic, but it remains negatively impacted by the Corona pandemic, said respondents. Logistics and residential remain beneficiaries of the current environment, and this will continue in the coming six months. According to Frank Brückbauer of ZEW, the gauge for Logistics has reached its highest level since the survey began.
In Q1, the situation and outlook on the refinancing markets are also assessed much more optimistically than in Q4. In terms of new business with office properties, financiers nevertheless intend to reduce their exposure in all risk profiles, but with Core still performing best. The whole question of home office working remains on the banks' agenda. Home office, which had not been considered important by any of the respondents before Corona, is now categorized as "important" and "very important" by almost half. The importance of an ESG certification label has also increased, and is now important to over 70%, up from a lowly pre-Corona level of 27%.
Pre-Corona hype about building flexibillity has gained weight in the light of implementing new hygiene concepts, which is now cited as significant by 47% of the respondents, well up on its earlier 17%. It remains to be seen whether the respondents focused mainly on user flexibility or the virus's distancing requirements.
While flexible office buildings for different post-tenant situations should generally also prove quite flexible for changed hygiene concepts, this was not considered a critical factor in the new environment. But there were also shifts in approach to the technical fitting-out of an asset, which 70% currently classify as "important"/"very important". Previously, the figure was 48%.
Significantly, the new importance of the sector composition of the tenants has become very relevant for over 90% - fully double the number from before Corona (43%). According to Anke Herz, concerns about possible rent losses certainly played a role here.
The quarterly survey has been published since Q4 in 2011.
