Performance of European Real Estate Companies: An Empirical Comparison

Abstract

This paper studies the performance of private property companies in 13 European countries: Austria, Belgium, Denmark, France, Finland, Germany, Greece, Netherlands, Norway, Portugal, Sweden, and the UK for the period of 1990 to 2003. We find large differences between the countries with the most profitable companies found in the Netherlands, Spain, Denmark, and the UK. We use a simultaneous equation framework to model the real estate sector with Profitability and capital structure as endogenous variables. We find that the elements that influence the profitability of the firm in one country are also largely relevant in the other countries but differ in the effect due to different economic conditions and business cycles in different countries. The economic crisis in the early 1990s left a clear mark for the countries suggesting the crisis was pan European. This indicates that business cycle is one important factor in the study of performance of the real estate sector. In addition, there can be potential portfolio gains by spreading the investment over the studied countries. We find a negative effect of borrowing on performance in most of the countries except Sweden, Greece (insignificant). Firm size firm has a weakly positive effect on performance in all countries except for Sweden where it is insignificant. Except for Austria (negative significant), Greece, and Portugal (insignificant), tangibility is related significantly positive to borrowing, but not to profitability.