Quantification of financial consequences of buildings' ageing: analysis of panel building-level data from the Polish office space market

Abstract

PurposeRelying on a unique proprietary Polish office market space database, the paper attempts to quantify the impact of buildings' age on the financial performance of real estate assets.Design/methodology/approachPanel econometric modeling was utilized to disentangle the impact of buildings' functional obsolescence and technical deterioration on their long-term financial performance.FindingsIn line with casual empiricism, our findings show a negative associative link between properties' age and potential lease revenue. The concomitant stickiness of service charges presages a possible long-term deterioration of financial outcomes of real estate investments. While older buildings generally have higher occupancy rates, the absorption rates are found to be negatively affected by the properties' age. On the bright side, the elasticity of vacancy rate with respect to rental rates is found to decrease as buildings get older. Further, the rent differential is confirmed to be more pronounced in higher age properties hinting at an existing potential for price discrimination, which may at least partially compensate for stagnant rents.Originality/valueOur empirical results confirm the properties' age to be a statistically significant factor in shaping the long-term performance of real estate assets, which should be better accounted for in financial projections for real estate developments.

Factor Analysis of Office Rent in the Kuala Lumpur City Centre Area

“…Investors typically base their decision to invest in office properties on the rental rate of the building to secure guaranteed capital and cash flows. Thus, their reliance on presumptions of office market dynamics has become a key value driver in accurately anticipating future profitability and income projections Kołodziejczyk et al, [5].…”

An analysis of the determinants of office real estate price modelling in Nigeria: using a Delphi approach

“…The stance of these Nigerian researchers contradicts the global best practice where researchers have affirmed micro variables to be significant in price determination. Among these are those who affirm building age (Olszewski et al, 2018;Kołodziejczyk et al, 2020), location (Kopczewska and Lewandowska, 2018;Berawi et al, 2019;Tse-Hsiung and Perng, 2019), building type (Kangallı Uyar, 2020), vacancy rate (Kangallı Uyar, 2020) proximity to transportation facilities (Bera and Kangalli Uyar, 2019;Tse-Hsiung and Perng, 2019).…”

“…Among these are those who affirm building age (Olszewski et al. , 2018; Kołodziejczyk et al. , 2020), location (Kopczewska and Lewandowska, 2018; Berawi et al.…”