Jonas Hahn

Office properties through the interest cycle: Performance impact and economic sustainability in Germany

Purpose - – The purpose of this paper is to estimate the impact of changes in macro-economic conditions going forward, focusing on a change in interest policy, with regard to office letting and investment markets. Design/methodology/approach - – For this analysis, the authors constructed two vector-autoregressive models, measuring the response of office rents and capital values in Germany to economic impulses. The authors isolated effects of unique exogenous positive shocks (such as economic growth or interest leaps) on the basis of impulse-response functions in order to understand the complex dynamic interdependence between several economic factors and office performance changes. Findings - – The authors initially find a moderately positive development of both office performance components even although supposing an increase in interest level. In terms of capital values, the authors find that they do not drop before 1.5 years after the interest impulse and the negative effect peaks after approximately nine quarters. Furthermore, the reaction to a change in GDP is significantly lower than a reaction to the interest rate, but impulses in other macro-economic factors provoke stronger reactions. Finally, the authors find that a positive interest shock leads to a comparably robust development and economic sustainability in office rents throughout a consideration horizon of 24 quarters. Research limitations/implications - – Estimations are based on observations from a time period containing two rather extraordinary market phases. As they included bubble growth and the low-interest environment, the authors find that certain patterns in both phases neutralize each other when looking at the total time frame. The authors constructed sub-samples to compensate for this. However, the research does not provide to what extent the measured impulse-responses stay forecast-proof, if the market moves into a phase of short-term normalization. Practical implications - – This paper provides insights into estimated impulse-response patterns on a hypothetical sudden increase of several macro-economic determinants. On this basis, the probable reaction to an increase in, for example, the interest rate level can be approximated. Also, the paper provides a fundamental understanding of the economic sustainability of German office properties in terms of their value and rent performance in the case of exogenous shocks. Originality/value - – This paper contains the first vector-autoregressive, impulse-response analysis of office markets in Germany in the context of several macro-economic drivers, including the interest level. It delivers insights into market reaction patterns on the basis of simulated one standard deviation shocks in all included variables.

How flood risk impacts residential rents and property prices: Empirical analysis of a German property market

The purpose of this paper is to quantify the impact of 100-year flood risk on both property rents and values in Germany, exemplified by the market of the historic city of Regensburg, and therefore supports investors in understanding market behavior patterns in both rental and investment context.,The authors construct two generalized additive models for rents and purchasing prices with spatial components and under inclusion of both typical property characteristics (as control variables) and a 100-year flood risk parameter in order to estimate its effect on the rents and property price structure. The authors apply the methodology to a four-year data set of more than 16,500 observations.,The analysis shows that flood risk is a highly significant parameter when estimating both the rent as well as the sales price model. The authors also find that purchase prices for one square meter of living area are, on average, EUR299 lower if the property is located in the flood risk zone. In addition, also rental markets come with a respective, but rather low, discount.,The authors provide transparency to investors in terms of the impact that a flood risk location has on property rents as well as purchasing prices. The study supports investors by providing evidence on reaction patterns in German real estate markets and helps quantifying the financial impact that comes with flood risk in Germany.,This is the first study that aims to empirically test and to quantify the impact of flood risk on property rents and purchasing prices in Germany. Related research has been performed for the USA, Ireland and New Zealand and largely refers to event-driven work or rather conceptual in the context of property valuation.

Green pay off in commercial real estate in Germany: assessing the role of Super Trophy status

Purpose Based on a hedonic regression approach, the purpose of this paper is to relativize existing green pay off evidence by incorporating Super Trophy as a so far underrepresented determinant. The authors analyze a private panel database of 160 European office properties and confirm a significant green pay off; the positive impact of excellent environmental certification results on market values and net rents is significantly reduced when considering Super Trophy characteristics. Design/methodology/approach Based on a panel database of 160 European office properties, the survey applies a hedonic regression approach including an extensive set of control factors as, for example, location criteria, general property characteristics, climate adjustments, consumption data, refurbishment activities, green leases, sustainable certification and energy performance certificate figures. Findings Even though our database still confirms a significant green pay off, the positive impact of excellent environmental certification results on market values and net rents is significantly reduced when controlling for Super Trophy characteristics. Practical implications Especially, the question how sustainability can be integrated into real estate appraisal is of major interest. The paper at hand may help in two aspects: on the one hand, it provides further insight with regard to the quantitative impact of Super Trophy Buildings on rents and market values. On the other hand, a higher transparency in appraisals may result in structural specifications that help to consolidate appraisals and empirical evidence on a “green pay off.” Originality/value The study investigates a niche segment – landmark properties. The empirical analysis explicitly controls for potential Super Trophy status. It draws attention to the importance of a reasonable and complete set of control variables to increase statistical validity of future studies in that field.

Does ‘clean’ pay off? Integrating heating technology in hedonic pricing models

Comprehensive research has dealt with the question whether property markets show price premiums for buildings that feature ‘green’ characteristics such as low energy consumption or a building certification. We expand existing research by raising and answering the question if housing properties that were explicitly advertised to feature ? ‘green’ ceating technology based on renewable energies or ‘brown’ heating technology based on fossil energies or even obsolescent technology come with significant price differences in association with these technological differences. For this purpose, we perform large-sample geoadditive regression analyses on the basis of a private dataset, which originally contains more than 3 million raw observations from German residential properties of 2015. We indeed find significant impact on housing prices, which is specifically visible in the form of a ‘brown’ discount for properties that are powered by fossil-fueled energy systems. From our findings, we suggest that low-energy consumption levels may still lead to price discounts c.p. if it is caused by mainly building-related quality and system-related measures stay unperformed.

Universal Web Based Data Processing Model for Rental Housing Profitability Calculation of Energetic Retrofitting

The current level of energy efficiency investments in the rental housing sector is in danger of missing EU policy targets to be reached by the year 2020. It’s possible that the goals are not being met due to a wide variety of reasons. Of great importance are especially different economic and political conditions for energy saving investments among the European member states. Furthermore the respective legal regulation in many states might still lead to “split incentives’ barriers” e.g. the landlord-tenant disincentive in the rental housing sector. Also a general lack of transparency and easy to process data is a core challenge for market participants. Therefore it is important to create a unique framework in order to assess the commercial viability of energy efficiency retrofitting in the rental housing stock. Besides calculation tools and models the assessment also has to take into account the inherent characteristics of the specific national rental markets, rental regulations, tax regimes etc. In order to ensure that such an approach is user friendly and widely used, a Web based solution will be needed. In our paper we will present a Web based concept to collect, normalize and process relevant data in order to ensure individualized results for the various investors types, legal environments etc. For that reason we will present a general network architecture using Web based technology. Here we put special emphasis on user friendly data processing as well as privacy & security. Due to the fact that the investment conditions for energetic retrofitting’s are varying considerably in Europe and furthermore input data is not static we need a flexible automatic processing tool that compute the data accordingly. For that reason we will present efficient algorithms and a universal data model.