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Common features in UK commercial real estate returns

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  • BRYAN MACGREGOR
  • GREGORY SCHWANN

Abstract

This paper examines the degree of short run co-movement in UK commercial real estate returns. The hypothesis is that a large fraction of the fluctuations may result from a small number of core disturbances that are transmitted from one region to another and from one property type to another. It adopts an approach from the business cycles literature which uses common features, and their complement, common cycles. The empirical modelling follows the work by Tiao and Tsay (1985), Engle and Kozicki (1993), Vahid and Engle (1993, 1994) and Engle and Issler (1995). Thirty-nine regional rates of return series are used, covering retail, office and industrial real estate for the economic planning regions of the UK. For the series that exhibit serial correlation, bivariate and multivariate common feature/common cycle tests are performed and reduced dimensional VAR models are estimated. The results suggest a single common cycle for the retail and industrial markets and three common cycles in the office market. The existence of common features is important in the study of commercial returns as, when common features exist, uncovering these enhances understanding of the returns generating process. Moreover, this assists in understanding the scope for diversification within real estate portfolios. The results offer important insights into the links between regional real estate markets, not least because they are consistent with previous studies using very different approaches.

Suggested Citation

  • Bryan Macgregor & Gregory Schwann, 2003. "Common features in UK commercial real estate returns," Journal of Property Research, Taylor & Francis Journals, vol. 20(1), pages 23-48, January.
    • Handle: RePEc:taf:jpropr:v:20:y:2003:i:1:p:23-48
    DOI: 10.1080/09599910210155518
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    Cited by:

    1. Cohen Viktorija & Burinskas Arūnas, 2020. "The Evaluation of the Impact of Macroeconomic Indicators on the Performance of Listed Real Estate Companies and Reits," Ekonomika (Economics), Sciendo, vol. 99(1), pages 79-92, June.
    2. Steven Devaney & Colin Lizieri, 2005. "Individual Assets, Market Structure and the Drivers of Returns," ERES eres2005_156, European Real Estate Society (ERES).
    3. Jorge Belaire-Franch & Kwaku Opong, 2013. "A Time Series Analysis of U.K. Construction and Real Estate Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 46(3), pages 516-542, April.
    4. Nafeesa Yunus, 2019. "Dynamic Linkages Among U.S. Real Estate Sectors Before and After the Housing Crisis," The Journal of Real Estate Finance and Economics, Springer, vol. 58(2), pages 264-289, February.
    5. Simeon Coleman & Vitor Leone, 2015. "An investigation of regime shifts in UK commercial property returns: a time series analysis," Applied Economics, Taylor & Francis Journals, vol. 47(60), pages 6479-6492, December.
    6. Zhu, Bing & van Dijk, Dorinth & Lizieri, Colin, 2024. "Price diffusion across international private commercial real estate markets," Journal of International Money and Finance, Elsevier, vol. 140(C).
    7. Simeon Coleman Author name: Vitor Leone, 2012. "Time-series characteristics of UK commercial property returns: Testing for multiple changes in persistence," NBS Discussion Papers in Economics 2012/03, Economics, Nottingham Business School, Nottingham Trent University.

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