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Factors Influencing Capitalization Rates

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Abstract

This study examines the variations in quarterly mean "capitalization rates" for commercial and industrial investment properties. By explaining the variations in the capitalization rate, we hope to expand the research in explaining variations in the overall return to property. This study differs from other research on portfolio capitalization rates because we separately analyze these rates by property type. The results show that using "averaged" capitalization rates across property types eliminates important information. We use the band of investment approach to develop a theoretical model explaining the capitalization rate and test this model using both Seemingly Unrelated Regression (SUR) and cross-sectional/time-series regression (panel data).

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  • Brent W. Ambrose & Hugh O. Nourse, 1993. "Factors Influencing Capitalization Rates," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 221-238.
    • Handle: RePEc:jre:issued:v:8:n:2:1993:p:221-238
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    Cited by:

    1. John McDonald & Sofia Dermisi, 2009. "Office Building Capitalization Rates: The Case of Downtown Chicago," The Journal of Real Estate Finance and Economics, Springer, vol. 39(4), pages 472-485, November.
    2. David Ling & Gianluca Marcato & Pat McAllister, 2009. "Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: the Case of Private Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 359-383, October.
    3. Daisy J. Huang & Charles Ka Yui Leung & Chung-Yi Tse, 2018. "What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 431-475, October.
    4. Doina Chichernea & Norm Miller & Jeff Fisher & Bob White & Michael Sklarz, 2008. "ACross-Sectional Analysis of CapRates by MSA," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 249-292.
    5. Terry V. Grissom & James R. DeLisle, 1999. "The Analysis of Real Estate Cycles, Regime Segmentation and Structural Change Using Multiple Indices (or A Multiple Index Analysis of Real Estate Cycles and Structural Change)," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 97-130.
    6. Stephen Malpezzi, "undated". "Hedonic Pricing Models: A Selective and Applied Review," Wisconsin-Madison CULER working papers 02-05, University of Wisconsin Center for Urban Land Economic Research.
    7. Patric H. Hendershott & Bryan D. MacGregor, 2003. "Investor Rationality: Evidence from UK Property Capitalization Rates," NBER Working Papers 9894, National Bureau of Economic Research, Inc.
    8. Stanley D. Smith & Larry R. Woodward, 1996. "The Effect of the Tax Reform Act of 1986 and Regional Economies on Apartment Values," Journal of Real Estate Research, American Real Estate Society, vol. 11(3), pages 259-276.
    9. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 1-43.
    10. Martin Lux & Petr Sunega, 2010. "Udržitelnost vývoje cen bytů v České republice [The Sustainability of House Price Trends in the Czech Republic]," Politická ekonomie, Prague University of Economics and Business, vol. 2010(2), pages 225-252.
    11. Jun Li & Xiaoli Liang, 2020. "Beyond the Cap Rate: Valuation of Multifamily Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 99-110, February.
    12. Jesse M. Abraham, 1996. "On the Use of a Cash Flow Time-Series to Measure Property Performance," Journal of Real Estate Research, American Real Estate Society, vol. 11(3), pages 291-308.
    13. Eric Belsky & John L. Goodman, Jr., 1996. "Explaining the Vacancy Rate - Rent Paradox of the 1980s," Journal of Real Estate Research, American Real Estate Society, vol. 11(3), pages 309-323.
    14. Devaney, Steven & Livingstone, Nicola & McAllister, Pat & Nanda, Anupam, 2019. "Capitalization rates and transaction activity in international office markets: A global perspective," Global Finance Journal, Elsevier, vol. 42(C).
    15. Kim, k. & Suh, s. & Feridun, M., 2006. "Real State Business Cycle and Real Estate Policies: The Case of Korea," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 6(1).
    16. Fabrizio Battisti & Orazio Campo, 2019. "A Methodology for Determining the Profitability Index of Real Estate Initiatives Involving Public–Private Partnerships. A Case Study: The Integrated Intervention Programs in Rome," Sustainability, MDPI, vol. 11(5), pages 1-22, March.
    17. Stanley D. Smith & Larry R. Woodward & Craig T. Schulman, 2000. "The Effect of the Tax Reform Act of 1986 and Overbuilt Markets on Commercial Office Property Values," Journal of Real Estate Research, American Real Estate Society, vol. 19(3), pages 301-320.
    18. G. Donald Jud & Daniel T. Winkler, 1995. "The Capitalization Rate of Commercial Properties and Market Returns," Journal of Real Estate Research, American Real Estate Society, vol. 10(5), pages 509-518.
    19. Mariya Letdin, 2017. "Under the Lender’s Looking Glass," The Journal of Real Estate Finance and Economics, Springer, vol. 55(4), pages 435-456, November.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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