Exploring The Athens Office Real Estate Market Crisis

Since the year 2001, the Athens office real estate market has been in a continually deepening state of crisis. While office rental values are on a non-stop downward swing, which can be estimated today at as much as 50% as against in 2000, neither entrepreneurs nor the banks seem to be particularly troubled by the situation, while new offices are constantly being constructed. The crisis in the office real estate market in Athens is not a normal development, a slump, which can be considered part of the expected cyclical movement of the real estate market. It is the result of a bubble that appeared during 1995-2000, which is due to structural and statutory changes in the market. Due to the complexity of the phenomenon and various other circumstances, it is not possible to explore this, using neo-classical econometric models. After all, the Greek real estate market stands out for its extreme opacity and lack of reliable statistical data. This paper aims to explore the Athens Office crises through a New Institutional Economics approach. Particular attention is paid to the specific institutional changes that took place during the 1990s in the Greek real estate market. These changes led to the liberalization of the Greek financial system while importance was given to developing the stock market and competition among banks. Bank competition resulted in the expansion of the credit system and more lenient terms for issuing loans for real estate investments. This high financial liquidity drove share prices up in the stock market and the real estate market. In addition, financial liquidity is also largely result to the large prevalence of the underground economy and money laundering which is carried out via real estate ñ something that is helped by Greek legislation and banking practices. The office real estate market had already been twisted by a deregulated system of land use and a deficient system of managing buildings stock, while the tax system for real estate allowed speculative investments. Finally, particular attention is paid to the Athens urban context, the new infrastructure projects that were created during the period of study, as well as to the collective psychology expressed during the boom and bust of the office market.