The cross-sectional dispersion of commercial real estate returns and rent growth
time variation and economic fluctuations
Additional information
Authors
Plazzi A.,
Torous W.,
Valkanov R.
Type
Journal Article
Year
2008
Language
English
Abstract
We estimate the cross-sectional dispersions of returns and growth in rents for commercial real estate using data on U.S. metropolitan areas over the sample period 1986 to 2002. The cross- sectional dispersion of returns is a measure of the risk faced by commercial real estate investors. We document that, for apartments, offices, industrial and retail properties, the cross-sectional dispersions are time varying. Interestingly, their time-series fluctuations can be explained by macroeconomic variables such as the term and credit spreads, inflation and the short rate of interest. The cross-sectional dispersions also exhibit an asymmetrically larger response to negative economics shocks, which may be attributable to credit channel effects impacting the availability of external debt financing to commercial real estate investments. Finally, we find a statistically reliable positive relation between commercial real estate returns and their cross-sectional dispersion, suggesting that idiosyncratic fluctuations are priced in the commercial real estate market.
Journal
Real estate economics
Volume
36
Number ( Month )
3
Pages (or article number)
403–439
Diffusion
License
License undefined
Visibility
Public
Status open access
Green
