The German real estate market has been buoyed by strong rental income figures. Property adviser King Sturge said on the real estate climate component of the King Sturge Real Estate Economy Index - which has been charting increasing confidence in the German market in recent months - achieved a new peak in May.

The poll-based Real Estate Climate registered a 3% increase and climbed from 144.6 to 146.3 index points. King Sturge said this was primarily borne by the rental income, which reflects rent rate performance and user demand. Following an increase by 2.3 %, the rental income now stands at 144.5 index points compared to 141.3 last month.

The investment climate, which is the second sub-component of the real estate climate, remained stable at 148 index points in May compared to 148.1 in April. King Sturge said there are now manifest signs for stabilisation but the upward momentum is slowing.

Looking closer at the sub-segments shows that they have continued to move toward one another. The gap between segments is closing. As in the previous month, the office climate showed the fastest growth rate, gaining 3.3% and clearing the mark of 140.4 index points compared to 136 last month. The retail climate slipped slightly by -1.4% down to 142.3 points from 144.4 last month, and is now more or less level with the office climate. Residential real estate continues to score the highest confidence vote. Following a marginal -0.1% decrease, it now stands at 166.6 index points compared to 166.7 the month before.

The fundamentals stabilised as well. The Real Estate Economic Situation, which is based on a statistical analysis of ifo Business Climate, DAX, Dimax, interest rates and bonds, rebounded after a decline in April. The 3.3% rise to 218.3 index points this month compared to 211.4 the previous month is to some extent explained by the switch of the ifo climate to a new base year. Without this shift, the increase would equal 0.6 percent.

'Even though all signs are set for growth, the lingering threats must not be underestimated. Then as now, the danger remains that the sovereign debt crisis might deepen into a currency crisis, which would deal a mortal blow to the economy. Unfortunately, a quick remedy to the crisis is nowhere in sight,' said Sascha Hettrich, managing partner at King Sturge Deutschland.