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

Bolesław Kołodziejczyk (Cresa Poland, Warsaw, Poland)
Dmytro Osiichuk (Kozminski University, Warsaw, Poland)
Paweł Mielcarz (Kozminski University, Warsaw, Poland)

Property Management

ISSN: 0263-7472

Article publication date: 24 November 2020

Issue publication date: 24 March 2021

143

Abstract

Purpose

Relying 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/approach

Panel econometric modeling was utilized to disentangle the impact of buildings' functional obsolescence and technical deterioration on their long-term financial performance.

Findings

In 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/value

Our 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.

Keywords

Citation

Kołodziejczyk, B., Osiichuk, D. and Mielcarz, P. (2021), "Quantification of financial consequences of buildings' ageing: analysis of panel building-level data from the Polish office space market", Property Management, Vol. 39 No. 2, pp. 227-249. https://doi.org/10.1108/PM-07-2020-0045

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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