Commercial real estate lectures
Lecture 1: Introduction
What is real estate?
What is commercial real estate?
What is the commercial real estate market and how does it work?
What are institutions? What are real estate market institutions?
What kind of real estate actors are there?
What is real estate?
Real estate: all goods that are attached to the earth’s surface. Land, or land + buildings.
Property: American vs British English. Real estate is about the physical, and property is the
institutional (ownership).
Real estate as a special good
- It’s immobile: Unique locational features (advantages or disadvantages) > market heterogeneity
- Longevity (lasts very long, often 50 years)
- Consequences: emergence of asset market, thin market, inelastic supply.
1. Emergence of asset market
- Immobility > scarcity > value (immobility gives it a specific value)
- Longevity > long-term value
- Leads to that it becomes an ‘asset’, in which you can invest, which can generate income.
2. Thin market
- Few transactions: people stay in real estate very long > few references/not transparent
- Importance of valuations (rather than prices)
- When you use valuations, you have the human factor: miscalculations, opportunism.
3. Inelastic supply
- Non-reproduceable (e.g. location, vintage)
- Time and cost of production/removal
- More demand will not lead to more supply, takes long time.
> cyclical nature of real estate market. When you don’t need it more supply, when you need it
shortage. It takes time to build.
What is commercial real estate?
1. Real estate with profit-seeking uses/users (offices/retail/industry)
2. Income-generating real estate: separation ownership and occupation (offices, retail, industrial plus
rental housing). We stick to this one. Ownership and use separated.
- Does not include owner-occupied housing (koopmarkt) and social/public property (libraries,
schools, hospitals, infrastructure).
What are commercial real estate markets?
- “A market is mechanism through which goods and services are voluntarily exchanged among
different owners” (Geltner, 2013, p.2)
Lecture 1: Introduction
What is real estate?
What is commercial real estate?
What is the commercial real estate market and how does it work?
What are institutions? What are real estate market institutions?
What kind of real estate actors are there?
What is real estate?
Real estate: all goods that are attached to the earth’s surface. Land, or land + buildings.
Property: American vs British English. Real estate is about the physical, and property is the
institutional (ownership).
Real estate as a special good
- It’s immobile: Unique locational features (advantages or disadvantages) > market heterogeneity
- Longevity (lasts very long, often 50 years)
- Consequences: emergence of asset market, thin market, inelastic supply.
1. Emergence of asset market
- Immobility > scarcity > value (immobility gives it a specific value)
- Longevity > long-term value
- Leads to that it becomes an ‘asset’, in which you can invest, which can generate income.
2. Thin market
- Few transactions: people stay in real estate very long > few references/not transparent
- Importance of valuations (rather than prices)
- When you use valuations, you have the human factor: miscalculations, opportunism.
3. Inelastic supply
- Non-reproduceable (e.g. location, vintage)
- Time and cost of production/removal
- More demand will not lead to more supply, takes long time.
> cyclical nature of real estate market. When you don’t need it more supply, when you need it
shortage. It takes time to build.
What is commercial real estate?
1. Real estate with profit-seeking uses/users (offices/retail/industry)
2. Income-generating real estate: separation ownership and occupation (offices, retail, industrial plus
rental housing). We stick to this one. Ownership and use separated.
- Does not include owner-occupied housing (koopmarkt) and social/public property (libraries,
schools, hospitals, infrastructure).
What are commercial real estate markets?
- “A market is mechanism through which goods and services are voluntarily exchanged among
different owners” (Geltner, 2013, p.2)
