Commercial property price index available now

/ Author: Masja de Ree
Rotterdam, The Netherlands
© Hollandse Hoogte / Robin Utrecht
Statistics Netherlands (CBS) is developing a national price index for commercial property in collaboration with the Netherlands’ Cadastre, Land Registry and Mapping Agency (Kadaster) and the Dutch Central Bank (DNB). It is important to gain insight into commercial property price trends because they are an important indicator for the financial stability in a country. A beta version of the index has already been published.

‘Until recently, CBS did not have a price index for commercial property’, says CBS researcher Ron van Schie. ‘But there is certainly a demand for it, for example within the European Central Bank, commercial banks and investors. When transaction prices of leased residential, industrial, office and retail buildings go up or down, this tells us a lot about the economy. This is why, over the past few years, the European statistical office Eurostat has been financing a project in which we examine the possibilities of a price index for commercial property.’

Combining data

The new commercial property price index is based on various key registers – the Cadastral key register (BRK), the Addresses and Buildings key register (BAG) and the key register for Real Estate Valuation (WOZ) – in combination with other data collected by CBS. Proper mapping of commercial real estate prices is not easy. Van Schie: ‘One of the reasons is that this type of property is often sold in portfolio transactions: larger units consisting of multiple retail, office or industrial buildings and sometimes also rented dwellings. Other research agencies do not include these portfolio transactions in their indices. We have managed to include these, which has greatly improved the cover ratio.’

Progressive insight

The Cadastral registration contains all transactions involving business premises at a national level. Van Schie: ‘Preliminary research conducted by CBS showed that these data best fit the objective of the index. Together with the Kadaster, we then spent a lot of time optimising the dataset.’ Matthieu Zuidema of the Kadaster: ‘Commercial property involves complex transactions. These can be portfolio transactions, but also large building transactions consisting of more than one address and plot. Throughout our collaboration, we have been increasingly successful in compiling a good dataset from these transactions. This was a good process of progressive insight, in which we really got to know and learn from each other as people from two different organisations; we learned from CBS about statistics and they learned from us about the complex relationships within our records.’

Throughout our collaboration, we have been increasingly successful in compiling a good dataset from these transactions

Hedonic method

During compilation of the index, CBS initially applied the same method as the one used for the price index of existing owner-occupied dwellings, which is also calculated on the basis of cadastral data. Van Schie: ‘Eventually, this method turned out to be inadequate and after consulting the sounding board group of users we examined a different method, the so-called hedonic method. This method allows us to estimate price developments based on building characteristics such as location, year of construction and floor area.’

Property and financial crises

DNB was closely involved in the development of the commercial property price index. Rob Nijskens, economist at DNB: ‘Real estate often plays a major role in times of financial crises because it involves large sums of investment and money loans. From a general perspective as well, the situation on the property market is strongly linked to a country’s economic situation. This is reflected in the index.’ DNB monitors the relation between the economy, the financial sector and the financial position of households and companies. Nijskens: ‘The commercial property price index is an important source of information in this respect. The index clarifies what we see and helps us to monitor developments in a proper way. As a policymaker, having insight into the peaks and troughs of the real estate market makes it easier to anticipate. The same applies to commercial banks, property funds, pension funds and the construction sector. Transparency is essential for the market and we see CBS as a key partner in generating reliable, independent information in order to achieve this transparency. We have also worked together to emphasise on an international level how important this index is.’

Official statistic

CBS is one of the first European statistical offices to publish a commercial property price index. As such, it is contributing to the creation of an international methodological standard in that area. Van Schie: ‘In the coming year, we are going to improve and deepen the beta version further in consultation with the users.’ Nijskens: ‘It is important to us that we also investigate whether and, if so, by whom the index is being used.’ Kadaster is interested in the price index methodology for its own use,’ says Zuidema. ‘What we have learned together about purchase prices in complex property transactions we also want to apply in our own information provision.’ The ultimate aim is for the commercial property price index to become available as an official statistic on StatLine. Meanwhile, a task force has been established at the European level as well. Van Schie: ‘It is very likely that the statistic will become a European obligation in the future.’