The More, the Emptier: The Consequences of Growing Concentration in Urban Office Space in Poland

ABSTRACT

The paper identifies and measures the economic consequences of the rapid saturation of commercial real estate markets in Poland. We document a negative link between the growing concentration of office buildings in the Polish real estate submarkets and building-level vacancy rates. Slower absorption in the areas that are more densely built up is accompanied by lower asking rents. The impact of saturation in real estate markets on building-level fundamentals is heterogenous across different classes of real estate assets, and high-quality buildings are less vulnerable than the low-quality buildings. Our findings demonstrate that higher density in office space harms investors.

KEYWORDS:

• Office space
• real estate market
• vacancy rate

JEL CLASSIFICATIONS:

• R00
• R33

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1. Prime yield is defined as the rate of return on a property with the highest quality rank (quality ranks are defined in Appendix Table 1) located in central urban business districts. The property should be fully leased at the prevailing initial rents to large high-quality tenants. The yield is calculated as a ratio of net income generated by the property to total property value (Catella Group 2018).

2. Vacancy rate is a percentage of a building’s gross leasable area (GLA) that is unoccupied by tenants.

3. Absorption rate is a percentage of GLA, which has been leased during a given period (usually reported on quarterly basis).

4. Cap rate is a ratio of net operating income generated by the property to building’s market value (Baker and Chinloy 2014).