The vdp Transaction Database as a Source for Commercial Property Price Indicators for Germany

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1 The vdp Transaction Database as a Source for Commercial Property Price Indicators for Germany Andreas Kunert / Franz Eilers Frankfurt am Main, May 2012

2 Bank Credit Process and Legal Regulation as a Source for Collecting Commercial Real Estate Data Acquisition Review Approval and contract Disbursement Stock and monitoring Repayment, extension, transaction Legal regulation - German Banking Act - Pfandbrief Act - MaRisk Valuers prepare detailed valuation reports to meet legal requirements Source: W. Crimmann, 2011, Mortgage Lending Value 2

3 Data Collection Bank 1 Bank 2 Bank 3 Bank n Quarterly updates observations p.a. Transactions database Prices Transaction Price Market Value Rent Characteristics Transaction Date Living Space Usable Space Construction Year Location (Macro and Micro) Fit-out Condition 3

4 Commercial Property Finance by vdp Member Banks Commercial mortgage lending market Total Loan outstanding at the end of 2011: Bill. Market share of member banks of vdp: 56.5% New Commercial Mortgage Loans by Property Type in 2011 Hotel 8.0% Industrial 1.1% Other 8.4% Office 48.8% New Commercial Mortgage Loans by Property Type Property type million million % Change Office 23,319 22, % Retail 11,426 15, % Hotel 2,569 3, % Industrial % Other 4,651 3, % Total 42,664 45, % of which Foreign 22,030 21, % Retail 33.8% Source: vdp statistics 4

5 vdp Transaction Database Observations by Property Type and Transaction Year 18,000 The database contains also about 600,000 observations for residential properties 111, ,000 16, ,000 14,000 12,000 80,000 Observations 10,000 8,000 60,000 6,000 40,000 4,000 2,000 20, Office Retail Warehouse Industrial Hotel Cumulated 5

6 Regional Distribution of Observations The regional distribution of observations in the database is driven by the main urban and economic areas. Nevertheless the database covers also rural areas of Germany. Legend Office Retail 6

7 vdp Indices for the German Real Estate Market Prices Single Family Houses Prices Condominiums Cap Rates Apartment Buildings Rents Apartment Buildings Cap Rates Office Rents Office Cap Rates Retail Rents Retail Price Index Owner Occupied Housing Capital Value Index Apartment Buildings Capital Value Index Office Capital Value Index Retail Capital Value Index Residential Capital Value Index Commercial German Real Estate Capital Value index released Under construction 7

8 Methodological Approach Bank 1 Bank 2 Bank 3 Bank 20 Bank Transactions database Prices Characteristics Preparation of data Codified valuation techniques Specification of the hedonic model Econometrics Estimation of the hedonic model 8

9 Transaction Based Indices for the Office Market Hedonic Rent index for office space Hedonic Cap rate index for office space Capital value index for office space = Rent index/cap Rate- Index 9

10 Hedonic Model of Office Rents Rent: Net rent per square meter floor space Regressors Macro location (municipality) Micro location (street level) Construction year Fit-out and condition Rented space Object size (overall space available) The sample contains lease contracts between 2003 Q1 and 2011Q4 10

11 Hedonic Model of Cap Rates Capitalization Rate t = Net Cash Flow t Transaction Price t For the estimation the same hedonic model has been used as in the rent equation The sample contains transactions of office buildings between 2003 Q1 and 2011:Q4 11

12 vdp Rent Index Office, :1 2012Q1 Level: QoQ: % YoY : % 12

13 vdp Cap Rate Index Office, :1 2012Q1 Level: 87.4 QoQ: 0.0 % YoY : % 13

14 vdp Capital Value Index Office, :1 2012Q1 Level: QoQ: % YoY : % 14

15 Office Market Germany - Rents, Cap Rates and Capital Values (annual average) Source: vdpresearch, CBRE (Transaction Volume) 15

16 Summary / Outlook A unique feature of the vdp transaction database is the fact that besides the transaction price the database also contains the price building characteristics Due to new participating banks the database will increase at a higher rate Price indices for owner occupied housing and for the office market are published quarterly, six weeks after end of the preceding quarter 16

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