How Integrated Is the Commercial Real Estate Asset Market? Evidence from Transaction Cap Rates
نویسنده
چکیده
This paper empirically measures the integration of the asset market of commercial real estate by studying the respective explanatory power of three types of variables – macroeconomic conditions, local market conditions, and property attributes – for property transaction cap rates. Results from analyzing about 10,000 sales of institutional grade commercial properties from 1977 to 2012 indicate that the asset market is substantially but not completely integrated. Macroeconomic conditions, particularly credit availability, risk-adjusted returns of past real estate investments, lagged house price appreciation, and nonresidential construction spending, play a dominating role in explaining property cap rates. Core Business Statistic Area (CBSA) fixed effects and property attributes provide some incremental explanatory power, but local market conditions explain very little of transaction cap rates. JEL classification: C51, E30, G11, G12
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