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Clustering Methods for Real Estate Portfolios

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  • William N. Goetzmann
  • Susan M. Wachter

Abstract

A clustering algorithm is applied to effective rents for twenty-one metropolitan U.S. office markets, and to twenty-two metropolitan markets using vacancy data. It provides support for the conjecture that there exists a few major "families" of cities: including an oil and gas group and an industrial Northeast group. Unlike other clustering studies, we find strong evidence of bicoastal city associations among cities such as Boston and Los Angeles. We present a bootstrapping methodology for investigating the robustness of the clustering algorithm, and develop a means for testing the significance of city associations. While the analysis is limited to aggregate rent and vacancy data, the results provide a guideline for the further application of cluster analysis to other types of real estate and economic information. Copyright American Real Estate and Urban Economics Association.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 23 (1995)
Issue (Month): 3 ()
Pages: 271-310

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Handle: RePEc:bla:reesec:v:23:y:1995:i:3:p:271-310

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Cited by:
  1. Janet K. Tandy & Leon Shilton, 1999. "Risk Assessment Steeplechase: Hurdles to Becoming a Target Market," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 17(2), pages 127-150.
  2. William Goetzmann & Matthew Spiegel & Susan Wachter, 1999. "Do Cities and Suburbs Cluster?," Yale School of Management Working Papers, Yale School of Management ysm115, Yale School of Management, revised 01 May 1999.
  3. Brett Day & Ian Bateman & Iain Lake, 2007. "Beyond implicit prices: recovering theoretically consistent and transferable values for noise avoidance from a hedonic property price model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 37(1), pages 211-232, May.
  4. Theodore M. Crone, 1999. "Using state indexes to define economic regions in the U.S," Working Papers 99-19, Federal Reserve Bank of Philadelphia.
  5. Mark Gallagher & Asieh Mansour, 2000. "An Analysis of Hotel Real Estate Market Dynamics," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 19(2), pages 133-164.
  6. Philip McCann & Stephen Lee, 2005. "The Implications for Regional Investment of Diversification Strategies in Commercial Real Estate Portfolios," ERSA conference papers ersa05p473, European Regional Science Association.
  7. Peter Byrne, 2005. "A Geography of the UK Commercial Property Market," Real Estate & Planning Working Papers, Henley Business School, Reading University rep-wp2005-17, Henley Business School, Reading University.
  8. Piet Eichholtz & Hans Op t Veld & Mark Schweitzer, . "Outperformance: Does Managerial Specialization Pay?," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 97-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
  9. Jacques Gordon & Paige MosbaughTodd Canter & Todd Canter, 1996. "Integrating Regional Economic Indicators with the Real Estate Cycle," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 12(3), pages 469-501.
  10. Brown, Stephen J. & Goetzmann, William N., 1997. "Mutual fund styles," Journal of Financial Economics, Elsevier, Elsevier, vol. 43(3), pages 373-399, March.
  11. Darren Hayunga & R. Pace, 2010. "Spatial Statistics Applied to Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 41(2), pages 103-125, August.
  12. Theodore M. Crone, 2003. "An alternative definition of economic regions in the U.S. based on similarities in state business cycles," Working Papers 03-23, Federal Reserve Bank of Philadelphia.
  13. Rena Sivitanidou, 1999. "Office Rent Processes: The Case of U.S. Metropolitan Markets," Working Paper 8664, USC Lusk Center for Real Estate.
  14. Theodore M. Crone, 2004. "A redefinition of economic regions in the U.S," Working Papers 04-12, Federal Reserve Bank of Philadelphia.
  15. Yongheng Deng & Jeffrey D. Fisher & Anthony B. Sanders & Brent Smith, 2003. "Estimation of NOI Growth, Volatility and Clustering by MSA," Working Paper 8613, USC Lusk Center for Real Estate.

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