A Comparative Analysis of Commercial Rents in Finland

This paper investigates short-run variations in office, retail and industrial rents in nine major cities in Finland over the 1990-2002 period. The study is motivated by the lack of research on modelling local rents in continental Europe and by the need to understand more fully the relationship between local rents and their drivers at different spatial scales. A reduced form demand -supply model is used to explain movements in commercial rents by a number of national and local factors. To alleviate the problem of relatively short time-series, panel analysis is applied. The nine cities are grouped based on the similarities between markets into two panels: the Helsinki Metropolitan Area and the rest of Finland. Dynamic panel models are estimated using an instrumental variable technique. The results demonstrate that the demand-side variables show a greater significance than a measure of changes in supply. Although both national and local factors were found to be important in explaining movements in local rents, national macroeconomic factors, in particular, lagged one year national GDP growth emerges as the strongest influence for all three property types. This suggests that it is possible to derive good models of local commercial rents on the basis of national economic variables. The results also indicate that there are some differences in the timing and magnitude of rents' responses to changes in economic activity and in supply across the examined cities; however, commercial rents in all of them behave in broadly the same way.