Non-residential real estate and economic activity: the case of Greece
| Date | 28 January 2014 |
| DOI | https://doi.org/10.1108/JPIF-08-2013-0051 |
| Published date | 28 January 2014 |
| Pages | 35-55 |
| Author | Ilias Lekkos,Irini Staggel,Konstantinos Kefalas,Paraskevi Vlachou |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Non-residential real estate
and economic activity:
the case of Greece
Ilias Lekkos, Irini Staggel, Konstantinos Kefalas and
Paraskevi Vlachou
Economic Analysis and Markets Division, Piraeus Bank Group,
Athens, Greece
Abstract
Purpose – The aim of the paper is to discuss developments in non-residential real estate in Greece.
Design/methodology/approach – Given the lack of existing literature, the authors start by
discussing at length the data sources available, and analyzing the stylized facts of non-residential real
estate activity in Greece. Finally, the authors examine the degree of covariation (using the index of
concordance methodology) between non-residential real estate and the business cycle.
Findings – The results indicate that the structure of non-residential sector is highly
fragmented into various sub-categories and at the initial stages of its developments, it was strongly
affected by the preparations for the 2004 Athens Olympic Games. Finally, despite its small share of
total GDP, non-residential real estate exhibits a significant degree of covariation with the business
cycle.
Practical implications – The extracted information may be a useful resource for those interested in
the developments in non-residential real estate in Greece and the covariation of key variables with the
business cycle.
Originality/value – The paper constitutes a systematic research approach for the role of
non-residential real estate in the Greek economic activity.
Keywords Greece, Economicgrowth, Business cycle, Gross fixedcapital formation,
Non-residentialreal estate
Paper type Research paper
1. Introduction
A large dichotomy exists in the literature regarding the contribution of construction
and real estate to economic activity and the correlation between peaks and troughs
in those sectors and the overall evolution of the business cycle in the wider economy.
On the one hand, there has been extensive research on the residential side of
construction, real estate and house pricing, and how booms and busts in residential
real estate are linked to the domestic and international business cycles (Case et al.,
1999; Kuttner, 2012). At the same time, however, non-residential construction and real
estate activities have received much less attention and their impact on economic
activity remains undocumented. This lack of evidence regarding the stylized facts on
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
The authors would like to thank the editor of this journal, Tasos Karaganis and conference
participants at the 3rd International Scientific Congress in Property Management, Valuation and
Development, Regional Development Institute, Panteion University, 2012 for valuable comments
and suggestions. The views expressed in this paper are those of the authors and do not represent
those of Piraeus Bank Group.
Received December 2012
Accepted August 2013
Journal of Property Investment &
Finance
Vol. 32 No. 1, 2014
pp. 35-55
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-08-2013-0051
Non-residential
real estate
35
non-residential economic activity and its links to GDP growth is even more acute in the
case of Greece, where activity remained more or less on an informal level with only a
few practitioners and real estate experts being able to provide anecdotal evidence
based on their experience and a few rules of thumb.
Our intention is to make a first attempt to fill this gap regarding Greek
non-residential real estate activity by using several newly available – unavoidably
covering a short time span – data series. Our paper has several aims. First, we want to
bring to the fore these new data sets and analyze their informational content.
Having introduced these data sources, we intend to analyze and document the
stylized facts of non-residential real estate in Greece, identify the major landmarks in
the evolution of non-residential real estate activity and contrast these stylized facts
with those of the rest of the Euro Area (EA).
Following the documentation of non-residential real estate’s stylized facts we
proceed with the decomposition of non-residential real estate into its main components.
What we are able to document is that, contrary to what is the norm in residential real
estate, where the sector is by and large extremely homogeneous, the non-residential
sector is extremely fragmented. It consists of many subsectors – each with its own
idiosyncratic behavior. Finally, our analysis would not have been complete without an
examination of the links between fluctuations in the non-residential real estate sector
and the wider economic or business cycle in Greece. As an intermediate step, we
implement an algorithm that allows us to estimate the phases of the business cycle in
Greece as well as the EA. Having done this, we are able to examine the proportion of
time that the most indicative variables of non-residential real estate activity co-exist in
the same phase of the business cycle (i.e. expansion or recession) as the cyclical
component of GDP.
The structure of our paper is as follows. In Section 2, we describe the data we
employ in our research and in Section 3, we document the stylized facts regarding
non-residential activity. In Section 4, we proceed to a decomposition of non-residential
activity to its key components and in Section 5, we examine the covariation between
non-residential activity indicators and the business cycle. Finally Section 6 concludes.
2. Data and sources
As stated in the Introduction, the aim of this paper is to present the stylized features of
non-residential const ruction activity in Greec e, compare its evolution t o the
corresponding activity in the EA and finally analyze its relationship to the Greek
business cycle. Given the multi-dimensional nature of non-residential investment
activity, we used a number of different sources in our research. We used quarterly data
on gross fixed capital formation (GFCF) from the Hellenic Statistical Authority
(ELSTAT, 2013) for Greece and Eurostat for the EA, for the period 2000:Q1-2012:Q4.
Furthermore, we decompose GFCF into its main components, namely “dwellings”,
“other buildings and structures” – which track closely non-residential investment and
“other investment”. Data on year-on-year real GDP growth were also derived from the
same sources for the same period.
A more detailed picture regarding non-residential activity is provided by the
number of non-residential building permits, the volume (measured in cubic meters, m
3
)
of non-residential building permits and the building permits indicator based on the
JPIF
32,1
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