Real estate clock

The position of a real estate market in its development cycle can be indicated on a real estate clock. It was first used by real estate company Jones Lang LaSalle to provide an overview of the various markets in which the company was active. Today it is published in many magazines such as the FAZ .

Course of the cycle

The real estate clock is based on the fact that real estate markets develop in cycles. Very high real estate prices are followed by an accelerating decline in values ​​( development , at midnight to 3 a.m.), which slows towards the lowest point ( market adjustment , 3 a.m. to 6 a.m.). After bottoming out, prices begin to rise again with increasing speed ( market stabilization , 6 a.m. to 9 a.m.), as the price level approaches the highest price level, the price increase slows down ( expansion , 9 a.m. to 12 p.m.).

The cyclical development of real estate markets can be justified with the slow response of supply to changes in demand (see: pig cycle ). So the portfolio growth of new space typically in the situation of overbuilding strongest weakens in phase market adjustment and may be negative in phases when rent increases in extreme cases. The reason for this is that the properties that were planned in the expansion phases in response to the price increases for property will only be completed when the market is already in a new phase. Properties that are planned or are not being planned in a situation of low property prices are completed in the phases with increased demand and cannot meet the demand, which leads to price increases and a consequent renewed build-up of excess supply .

Expressiveness

The informative value of the real estate clock is, however, very limited, as the speed with which individual markets develop is difficult to forecast. Markets can also move counterclockwise. It should therefore be interpreted more descriptively than as a prognosis.

A delayed response of the supply to changes in demand can be attributed to the following aspects:

• Location financing - large investments require complex and time-consuming financing
• Production time - the construction time (also: creation time ) for real estate is relatively long
• Longevity - real estate can be used for a long time. If the market price falls, real estate will continue to be offered, even if the market price no longer guarantees full cost recovery
• Heterogeneity and lack of transparency - the markets are difficult to see through for providers of real estate