Corporate Real Estate Ownership and its Contribution to Firm Performance under Business Uncertainty: Empirical Evidence from European Non-Property Companies

Structural and dynamic changes, intensified by the current pandemic situation, con-front companies with high levels of uncertainty. This becomes a challenge especially when deci-sions have to be made about resources that are critical to success and difficult to revise, such as ownership of corporate real estate. This article examines how uncertainty affects the holding of specific property and whether corporate real estate ownership has a positive or negative impact on firm performance under consideration of business uncertainty. Two studies have been conducted. In the first study, multivariate cross-sectional regression analysis is used to test the link between specificity and corporate real estate (CRE) ownership under business uncertainty. Balance sheet data of non-property companies of the six biggest European economies is used. For the second study, the sample was expanded to all companies listed in Europe and their capital market data to investigate the influence of the corporate real estate ownership on firm performance under uncertainty. The empirical results show a positive link between specificity and CRE ownership. Additionally, companies seem to adjust their investment behaviour in specific properties under uncertainty by avoiding or postponing investments or even writing-off specific real estate assets due to their transfer to a new use. Furthermore, the results show that the excess returns decrease in the medium term as CRE ownership under uncertainty increases. Our findings also indicate that regardless of the uncertainty situation, CRE ownership reduces the systematic risk. Thus, ownership seems to have a diversifying effect. This paper expands the scientific discourse by explicitly linking real estate specificity with the choice between ownership, leasing or rental solutions and firm performance. The article clarifies that in order to avoid inefficiencies, the irreversibility of specific real estates should be considered in the CRE ownership decision especially by firms operating in a structurally chang-ing business environment.