Sentiment on Real Estate Markets Is Worse than Ever Before

DIFI Report by ZEW and JLL

DIFI Hits New Record Low

The German Real Estate Finance Index (DIFI) by ZEW Mannheim and Jones Lang LaSalle (JLL) has declined for the fourth time in a row. The index falls to minus 69.7 points in the fourth quarter of 2022, losing 19.2 points compared to the previous quarter. This brings the index to an all-time low.

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 fourth quarter of 2022. The situation indicator dropped 22.6 points, falling to a value of minus 82.3 points. At minus 57.1 points, financing expectations are somewhat less pessimistic than the financing situation. The corresponding sub-indicator is down 15.9 points compared to the previous quarter.

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Graph of situation and expectations assessment of the five real estate market segments

In the fourth quarter of 2022, almost all situation and expectation indicators under consideration recorded declines. The differences between the types of real estate use are small, with the financing of hotel properties being rated best overall and the financing of residential properties the worst. The DIFI sub-indicators for retail, logistics and residential real estate financing – reflecting the average assessment of the current situation and expectations – reach new record lows in Q4 2022.

A look at the individual situation indicators shows that respondents in Q4 2022 rate the financing situation for hotel properties slightly better than in Q3 2022. The corresponding indicator rises by 9.4 points, but is still deep in negative territory at minus 60.1 points. The declines in the other situation indicators range from 17.8 points (office) to 44.4 points (residential). Among the expectation indicators, only the indicator for retail performs better than in the previous quarter, rising by 8.4 points to minus 43.8 points.

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 JLL and the ZEW – Leibniz Centre for European Economic Research. 19 experts participated in the survey, which was conducted 31 October – 11 November 2022.

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