Erhvervsejendomme og finansielle kriser

Michael Henrik Hegnet Jensen & Lior Koren

Student thesis: Master thesis


Recognizing that there has been a limited amount of research on the market for commercial real estate in Denmark, we have decided to gather data available to the public and the data available to us through our contacts with real estate brokers, lawyers and statistical databases in order to investigate whether; - There has been a speculative bubble on the market for commercial real estate in Denmark - Which structural and legislative factors have affected the price development - Have the lending policies in the banks and the mortgage institutions contributed to the price development for commercial properties The third thesis is primarily inspired by Davis & Zhu (2004 and 2005) who find that bank lending is closely correlated to commercial real estate prices in cross country examinations. Since the market for commercial real estate in Denmark has not been thoroughly investigated we have found it necessary to make an in depth study of the market itself; including an analysis and a time series research on prices and fundamentals expected to impact prices. Our study covers the period from 1980 to 2009. The time series for prices of commercial real estate are not as long and not as reliable as time series of e.g. residential real estate, stocks or bonds. We have therefore in addition to these time series created our own implied prices from the information on rent levels and investor yields obtained from commercial real estate brokers. This provides us with a higher certainty of when the prices increased or decreased and by how much. Our implied prices verifies to a wide extent the prices obtained by public databases. We can verify that there has been a substantial increase in prices on commercial real estate in the period prior to the financial crisis culminating in October 2008 – price increases were especially on office and retail buildings. Furthermore we conclude that there have been general economic conditions justifying some of the increases – those conditions being low interest rates, high employment and an increase in GDP. However we do not find that these fundamentals can justify the major price increases observed during the period of 2005 through medio 2008 and therefore conclude that there is evidence pointing towards extensive speculative behavior on the market causing a bubble. In addition we find evidence that the lending policies of the financial institutions have expanded their financing of commercial real estate during the same period – thus potentially underestimating the risk of a downturn and relying too much on market prices in their internal valuation of properties. We argue that the current legislation on property valuation may have contributed to financial institutions overestimating prices in an overheated market, thus allowing too many loans based on property value.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2011
Number of pages187