Sentiment on Real Estate Markets Deteriorates Further

DIFI Report by ZEW and JLL

DIFI Declines for the Third Time in a Row

The German Real Estate Finance Index (DIFI) by ZEW Mannheim and JLL has declined for the third time in a row. The index falls by six points to minus 50.5 points in the third quarter of 2022. At least the rapid downturn in sentiment witnessed in the second quarter, when the index plummeted by more than 50 points, slowed down considerably.

Both the experts’ assessments of the financing situation in the past six months and the outlook for the financing situation in the coming six months have deteriorated in the third quarter of 2022. The situation indicator dropped 6.3 points, falling to a value of 59.7 points. At minus 41.2 points, the financing expectations are somewhat less pessimistic than the financing situation. The corresponding sub-indicator is down 5.7 points compared to the previous quarter.

Residential and logistics properties rated best

In the third quarter of 2022, all situation and expectation indicators for all property use types remain in negative territory. Financing of office, retail and hotel properties is rated worse overall than in the previous quarter, while residential use is assessed more positively overall. The use of real estate for logistics is expected to remain almost unchanged. With values for the corresponding DIFI sub-indicators of minus 36.6 and minus 43.2 points respectively – reflecting the average assessment of the current situation and expectations –, the categories “logistics” and “residential properties” are rated best overall. With minus 59.7 points, the categories “office” and “hotel” share last place.

The current financing conditions in the office and hotel segments are considered to be particularly negative, where the sub-indicators slipped to a value of minus 76.9 (office) and minus 69.5 (hotel) points. In contrast, market experts are more optimistic about residential real estate than in the previous quarter, even though their overall assessment is also clearly negative at minus 55.6 points. The financing opportunities are rated best for logistics real estate (minus 42.4 points). The outlook for the coming six months paints a similar picture. The financing experts surveyed are most confident about the housing and logistics segments, with the housing market in particular being assessed significantly more positively than in the second quarter. Nevertheless, portfolio holders in particular are likely to face problems with upcoming refinancing as a result of higher lending rates.

The German Real Estate Finance Index (DIFI)

The German Real Estate Finance Index (DIFI) reflects survey participants’ assessment of the current situation (including the previous six months) of and expectations (for the coming six months) for the commercial real estate financing market. It is conducted on a quarterly basis and calculated as the average value of the balances between the following segments: office, retail, logistics, residential properties and hotels. The balance for each segment is the difference between the percentage of participants who are optimistic and the percentage of participants who are pessimistic about the current state and future development of financing conditions in the German real estate market. The DIFI is a survey conducted and published by Jones Lang LaSalle (JLL) and the ZEW – Leibniz Centre for European Economic Research. 25 experts participated in the survey, which was conducted 9–20 May 2022.

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