Indices of Commercial Real Estate Value in Greece

Denise Sze Ting Bong

Master's thesis

Abstract:

Commercial real estate generally includes properties that are used for business purposes, such as offices, retail stores, shopping centers, warehouses, industrial buildings, hotels, and apartment buildings with more than 5 units. These properties are typically leased to tenants who use them to conduct business activities, and the owners of the properties earn income from rent or lease payments. Commercial real estate may also include land that is used for commercial purposes, such as parking lots or development sites. The commercial real estate index data obtained from the Bank of Greece over the period 2006 to 2022 is used to investigate the indices of commercial real estate value. The main commercial real estate indices: price, rental, and rental yield are analysed to identify potential risk and market risk to maintain financial stability and avoiding market disruptions. The indices provide insights into past and present market conditions, as well as forecast potential risks and help maintain market stability. This empirical study employs data on investment and yields of commercial property portfolio generated and regulated by the Real Estate Investment Companies (REICs), and data on commercial property valuations, rents and transactions from property consultants and valuers. The procedure to investigate indices of rental and market value of commercial properties requires collection and analysis of historical price data from past transactions as well as the record of price trend over time. The aim of this paper is to investigate the potential indices of commercial real estate value in Greece arises from the consistent change of economical and global situation. A secondary research based study shows that stock market and real estate market are correlated with the support of two mechanisms: 1) wealth effect from stock market to property market, and 2) credit price effect from property market to stock market. Wealth effect suggests that households with unrealised gains in share prices lead to an increase in the amount of real estate investment, while credit price effect claims that an increase in real estate prices encourages economic activities, thereby increase the future profitability of firms, and this leads to an increase in the value of collateral and reducing the cost of borrowing for firms and households, consequently increases the stock prices (Hui & Ng, 2012). The main primary research data is gathered through an in-depth interview with a local expert in Greece’s commercial real estate market. The main limitation or gap in this study is that commercial properties are dependable on their diverse characteristics in terms of location, local population, accessibility, and more. To minimise the limitation, data selection is based on three main criteria of its property characteristics which are the location, rental value and market value. Another way to minimise the limitation is the utilisation of all information available. The research methodology implemented for investigating the price indices of commercial property is based on the fixed basket or pure price index of properties which is also categorised by the characteristics: the rental value, market value and location. The findings of the empirical study indicates that the austerity measures imposed in the Economic Adjustment Programme by the Greek government and Greek’s debt crisis negatively affected the commercial real estate value. The findings also suggests that the wealth effect is more applicable to the real estate prices in the Athens than to the other urban areas (Kapopoulos & Siokis, 2006). At the final stage of analysis, published reports and primary data gathered through in-depth interview with local expert are used to determine the key potential indices of commercial real estate value in Greece.

Abstract:

Commercial real estate generally includes properties that are used for business purposes, such as offices, retail stores, shopping centers, warehouses, industrial buildings, hotels, and apartment buildings with more than 5 units. These properties are typically leased to tenants who use them to conduct business activities, and the owners of the properties earn income from rent or lease payments. Commercial real estate may also include land that is used for commercial purposes, such as parking lots or development sites. The commercial real estate index data obtained from the Bank of Greece over the period 2006 to 2022 is used to investigate the indices of commercial real estate value. The main commercial real estate indices: price, rental, and rental yield are analysed to identify potential risk and market risk to maintain financial stability and avoiding market disruptions. The indices provide insights into past and present market conditions, as well as forecast potential risks and help maintain market stability. This empirical study employs data on investment and yields of commercial property portfolio generated and regulated by the Real Estate Investment Companies (REICs), and data on commercial property valuations, rents and transactions from property consultants and valuers. The procedure to investigate indices of rental and market value of commercial properties requires collection and analysis of historical price data from past transactions as well as the record of price trend over time. The aim of this paper is to investigate the potential indices of commercial real estate value in Greece arises from the consistent change of economical and global situation. A secondary research based study shows that stock market and real estate market are correlated with the support of two mechanisms: 1) wealth effect from stock market to property market, and 2) credit price effect from property market to stock market. Wealth effect suggests that households with unrealised gains in share prices lead to an increase in the amount of real estate investment, while credit price effect claims that an increase in real estate prices encourages economic activities, thereby increase the future profitability of firms, and this leads to an increase in the value of collateral and reducing the cost of borrowing for firms and households, consequently increases the stock prices (Hui & Ng, 2012). The main primary research data is gathered through an in-depth interview with a local expert in Greece’s commercial real estate market. The main limitation or gap in this study is that commercial properties are dependable on their diverse characteristics in terms of location, local population, accessibility, and more. To minimise the limitation, data selection is based on three main criteria of its property characteristics which are the location, rental value and market value. Another way to minimise the limitation is the utilisation of all information available. The research methodology implemented for investigating the price indices of commercial property is based on the fixed basket or pure price index of properties which is also categorised by the characteristics: the rental value, market value and location. The findings of the empirical study indicates that the austerity measures imposed in the Economic Adjustment Programme by the Greek government and Greek’s debt crisis negatively affected the commercial real estate value. The findings also suggests that the wealth effect is more applicable to the real estate prices in the Athens than to the other urban areas (Kapopoulos & Siokis, 2006). At the final stage of analysis, published reports and primary data gathered through in-depth interview with local expert are used to determine the key potential indices of commercial real estate value in Greece.

Keywords

Price Indices, Commercial Real Estate, Greece

Keywords

Price Indices, Commercial Real Estate, Greece

Language used: English

Date on which the thesis was submitted / produced: 28. 4. 2023

Thesis defence

• Date of defence: 6. 6. 2023
• Supervisor: Josef Taušer
• Reader: Jakub Zezula

Vysoká škola ekonomická v Praze

Master programme:
International Business - Central European Business Realities