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On demand: Cross-country evidence form Commercial Real Estate Asset Markets

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  • Timothy J. Riddiough
  • Ott Steven
  • Ha-Chin Yi
  • Jiro Yoshida

Abstract

Using over 25 years of quarterly US and Japanese time series data, this paper examines the determinants of demand for an important class of real assets: commercial real estate. We specify a structural model of market equilibrium that considers direct effects of real investment on built asset price. Our empirical findings are consistent across countries and produce several new results. First, we find that real investment exerts a significant positive direct effect on asset price, which in turn feeds back to impact investment decisions. Second, idiosyncratic risk is found to be strongly positively related to asset price, and to complement supply effects. Third, systematic risk is priced as expected, where the strength of the relation between asset price and systematic risk is found to be higher than in previous studies of capital asset prices. Fourth, lagged values of price determinants (of up to two years) are consistently important in real asset demand estimation. Alternative explanations for our findings are analyzed and discussed. Implications for asset pricing model specification and interpretation are also considered.

Suggested Citation

  • Timothy J. Riddiough & Ott Steven & Ha-Chin Yi & Jiro Yoshida, 2001. "On demand: Cross-country evidence form Commercial Real Estate Asset Markets," ERES eres2001_264, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_264
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    Cited by:

    1. Frank Packer & Timothy Riddiough, 2012. "Securitisation and the Commercial Property Cycle," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Frank Packer & Callan Windsor (ed.),Property Markets and Financial Stability, Reserve Bank of Australia.
    2. Nigel Almond & Sotiris Tsolacos, 2005. "An Empirical Study of the UK Private Investor Market," Journal of Property Research, Taylor & Francis Journals, vol. 22(2-3), pages 97-114, October.

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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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