The commercial real estate market - no longer a “black box”

Abstract

Norwegian banks’ exposure to commercial real estate (CRE) is substantial. Historically, banks in Norway and in other countries have incurred considerable losses on loans to this sector during financial crises. Publicly available information has been limited. This is partly because CRE is a highly heterogeneous product, and transactions involving commercial buildings are often not recorded in public registers. Norges Bank has recently obtained access to a large sample of data for commercial buildings. We have linked this data set to banks’ mortgages on buildings and estimated the market value of buildings. Our results show that the preponderance of banks’ exposure to CRE is to the office market in cities, particularly in Oslo. On the otherhand, the most expensive office buildings are one of the segments banks are less exposed to. Furthermore, we find that banks are broadly exposed to the CRE market and that individual banks’ exposures to different building types are fairly similar.