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An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm

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  • Terry V. Grissom
  • David Hartzell
  • Crocker H. Liu

Abstract

This paper investigates whether a segmented market exists for industrial real estate with respect to risk and return characteristics. Given the existence of industrial market segmentation, the next issue examined is whether a submarket perspective or an integrated real estate market orientation provides better rate of return estimates for individual industrial properties using an Arbitrage Pricing Theory (APT) framework. The results support the existence of regional markets for industrial real estate. A submarket orientation rather than an integrated perspective is also found more appropriate in predicting returns on industrial real estate. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • Terry V. Grissom & David Hartzell & Crocker H. Liu, 1987. "An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 199-219.
  • Handle: RePEc:bla:reesec:v:15:y:1987:i:3:p:199-219
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00428
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    References listed on IDEAS

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    1. Bruce N. Lehmann & David M. Modest, 1985. "The Empirical Foundations of the Arbitrage Pricing Theory II: The Optimal Construction of Basis Portfolios," NBER Working Papers 1726, National Bureau of Economic Research, Inc.
    2. Bruce N. Lehmann & David M. Modest, 1985. "The Empirical Foundations of the Arbitrage Pricing Theory I: The Empirical Tests," NBER Working Papers 1725, National Bureau of Economic Research, Inc.
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    Cited by:

    1. David Ho & Kwame Addae-Dapaah & John Glascock, 2015. "International Direct Real Estate Risk Premiums in a Multi-Factor Estimation Model," The Journal of Real Estate Finance and Economics, Springer, vol. 51(1), pages 52-85, July.
    2. Thomas E. McCue & John L. Kling, 1994. "Real Estate Returns and the Macroeconomy: Some Empirical Evidence from Real Estate Investment Trust," Journal of Real Estate Research, American Real Estate Society, vol. 9(3), pages 277-288.
    3. 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.
    4. Waldo L. Born & Stephen A. Pyhrr, 1994. "Real Estate Valuation: The Effect of Market and Property Cycles," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 455-486.
    5. Séverine CAUCHIE & Martin HOESLI, 2004. "The Integration of Securitized Real Estate and Financial Assets," FAME Research Paper Series rp111, International Center for Financial Asset Management and Engineering.
    6. Chun-Chang Lee & Hsueh-Ling Fan, 2016. "The Impact of Administrative Characteristics and Residential Types on Income Capitalization Rates in Taipei, Taiwan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(10), pages 602-619, October.
    7. Mark G. Dotzour & Terry V. Grissom & Crocker H. Liu & Thomas Pearson, 1990. "Highest and Best Use: The Evolving Paradigm," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 17-32.
    8. Dirk P.M. De Wit, 1993. "Smoothing Bias in In-House Appraisal-Based Returns of Open-End Real Estate Funds," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 157-170.
    9. 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.
    10. Terry V. Grissom & Ko Wang & James R. Webb, 1992. "The Spatial Equilibrium of Intra-Regional Rates of Return and the Implications for Real Estate Portfolio Diversification," Journal of Real Estate Research, American Real Estate Society, vol. 7(1), pages 59-72.
    11. Nafeesa Yunus, 2013. "Dynamic interactions among property types: International evidence based on cointegration tests," Journal of Property Investment & Finance, Emerald Group Publishing, vol. 31(2), pages 135-159, March.
    12. Kevin C.H. Chiang & Kirill Kozhevnikov & Ming-Long Lee & Craig H. Wisen, 2006. "REIT Mimicking Portfolio Analysis," International Real Estate Review, Asian Real Estate Society, vol. 9(1), pages 95-111.

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