Monitoring and analysis of the risk of the commercial real estate sector in Poland: data sources, methodology and empirical results

This paper shows how Narodowy Bank Polski analyses the commercial property market in Poland and monitors risks that it can generate for the financial sector and the whole economy. This market is crucial for the functioning of the modern economy, but it has also led to economic and financial crises in many countries. Especially under the very low interest rates in the euro zone, a lot of capital flows into the commercial real estate market. A holistic approach to its analysis is needed. We present a hedonic rent index for office and retail properties in two major cities and a transaction price index for the office market and the retail market in the whole country. Commercial real estate is very heterogenous, therefore we need to apply hedonic regressions to obtain reliable price and rent indices. For this purpose we also describe which data about commercial real estate rents and prices and information about their determinants is collected and how this is done. Finally, we present an analysis of the profitability of an office space investment, which helps to understand the situation of investors and also to make a simple stress test of the rate of return, which accounts for increasing interest rates and/or vacancy rates.