Constructing a commercial property price index for Malta

Abstract

The commercial real estate sector has been growing significantly over the years and while we constantly hear about studies and policies in the residential real estate market, this sector remains relatively untapped in Malta. On this note, this study provides an analysis of the price trends over the last fifteen years through the construction of a hedonic price index. This index provides insight on how the different characteristics of the properties, such as the property type, size and location impact prices. Both the rental market and the market for properties for sale are explored through two different cross-sectional datasets provided by two major real estate agents in Malta. The results for the two indices both showcase common trends over the last five years with the most significant increase in prices happening over 2018, followed by a slight drop in prices over 2019 and 2020, in line with the economic slowdown. These trends are also in line with the trends observed by the IMF for most countries, where prices doubled since 2009. This analysis also reveals that properties in the western and northern regions, particularly the 7th and the 12th district attract the highest prices. In general, price levels for properties listed for rent are higher than those for properties listed for sale and generally offices attract higher prices than shops. This study also identifies some of the risks that this sector might be exposed to in light of the drop in prices observed over 2020 due to the Covid-19 pandemic, which is mainly attributed to a drop in prices of shops and properties in the tourism sector. Some trends which are challenging the pre-existing structural trends, such as the rise of e-commerce and remote working are also highlighted in this study as these may lead to significant shifts in the operations of business. The shift in consumer preferences from brick-and-mortar retail to ecommerce can already be observed through the drop in prices of shops observed in 2019, a shift which was accelerated by the pandemic. Although this study does not make use of data for the whole Maltese commercial real estate market, it still provides a very detailed overview of the market. The results highlight trends which can help authorities and stakeholders take more informed decisions.