Is there a Real Estate Portfolio Premium? : An Empirical Analysis of Portfolio Premiums

Abstract: This thesis aims to explore if the existence of portfolio price premiums can be verified and if they differ in time and over property segments. The purpose is to contribute with valuable insights within the field of portfolio premiums in the real estate industry. In order to explore this further a regression model was developed. The model includes six portfolio variables controlling for size in the aspect of transactional value and number of properties included in the portfolio. We further test if the premium varies over property segments and over time. The data was provided by Cushman & Wakefield and consists of 825 property transactions. The results show that a portfolio premium for small, medium and large portfolios with a transactional value over 500 million SEK, and a discount on small portfolios with a transactional value below 500 million SEK is present. The premium was found to be 17.5% for small portfolios, 16.8% for medium sized and 26.3% for large portfolios. While premiums were found for portfolios with a transactional value over 500 million SEK an 13.7% discount was found for small portfolios with a transaction value below 500 million SEK. Which indicates that investors are willing to pay a premium, but only for larger portfolios. Furthermore, the only segment test with significant results were residential and industrial of which residential indicated a discount on small and medium portfolios with a transactional value over 500 million SEK and industrial indicated a discount on small portfolios with a transactional value over 500 million SEK. The test of variation of a portfolio premium over time gave mixed results and showed that investors payed a premium for medium and large portfolios with a transactional value over 500 million SEK during 2010 - 2015.