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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.

Suggested Citation

  • William N. Goetzmann & Susan M. Wachter, 1995. "Clustering Methods for Real Estate Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(3), pages 271-310, September.
    • Handle: RePEc:bla:reesec:v:23:y:1995:i:3:p:271-310
    DOI: 10.1111/1540-6229.00666
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    Cited by:

    1. 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.
    2. Yanbo Liu & Peter C. B. Phillips & Jun Yu, 2023. "A Panel Clustering Approach To Analyzing Bubble Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1347-1395, November.
    3. Kristin Wellner & Matthias Thomas, 2004. "Diversification Benefits from European Direct Real Estate Investment with a Special Focus on the German Market," ERES eres2004_231, European Real Estate Society (ERES).
    4. Mark Gallagher & Asieh Mansour, 2000. "An Analysis of Hotel Real Estate Market Dynamics," Journal of Real Estate Research, American Real Estate Society, vol. 19(2), pages 133-164.
    5. Peter Byrne, 2005. "A Geography of the UK Commercial Property Market," Real Estate & Planning Working Papers rep-wp2005-17, Henley Business School, University of Reading.
    6. Gang-Zhi Fan & Seow Eng Ong & Hian Chye Koh, 2006. "Determinants of House Price: A Decision Tree Approach," Urban Studies, Urban Studies Journal Limited, vol. 43(12), pages 2301-2315, November.
    7. Simon Wiersma & Dr. Michael Heinrich & Prof. Dr. Tobias Just, 2018. "La Aplicación del Análisis Clúster en los Mercados Inmobiliarios," LARES lares_2018_paper_23-heinr, Latin American Real Estate Society (LARES).
    8. Theodore M. Crone, 1999. "Using state indexes to define economic regions in the U.S," Working Papers 99-19, Federal Reserve Bank of Philadelphia.
    9. Janet K. Tandy & Leon Shilton, 1999. "Risk Assessment Steeplechase: Hurdles to Becoming a Target Market," Journal of Real Estate Research, American Real Estate Society, vol. 17(2), pages 127-150.
    10. Brown, Stephen J. & Goetzmann, William N., 1997. "Mutual fund styles," Journal of Financial Economics, Elsevier, vol. 43(3), pages 373-399, March.
    11. Martin Greiner & Matthias Thomas, 2014. "Continuity of the valuation of property portfolios with stratified sampling: a case study," Journal of Property Research, Taylor & Francis Journals, vol. 31(2), pages 154-179, June.
    12. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 1997. "The Spatial Dimensions of the Investment Performance of UK Commercial Property," Urban Studies, Urban Studies Journal Limited, vol. 34(9), pages 1475-1494, August.
    13. 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, vol. 12(3), pages 469-501.
    14. David C. Wheeler & Antonio Páez & Jamie Spinney & Lance A. Waller, 2014. "A Bayesian approach to hedonic price analysis," Papers in Regional Science, Wiley Blackwell, vol. 93(3), pages 663-683, August.
    15. Theodore M. Crone, 2004. "A redefinition of economic regions in the U.S," Working Papers 04-12, Federal Reserve Bank of Philadelphia.
    16. 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.
    17. 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, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 211-232, May.
    18. Darren Hayunga & R. Pace, 2010. "Spatial Statistics Applied to Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 41(2), pages 103-125, August.
    19. Rena Sivitanidou, 1999. "Office Rent Processes: The Case of U.S. Metropolitan Markets," Working Paper 8664, USC Lusk Center for Real Estate.
    20. Piet Eichholtz & Hans Op t Veld & Mark Schweitzer, "undated". "Outperformance: Does Managerial Specialization Pay?," Center for Financial Institutions Working Papers 97-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
    21. William Goetzmann & Matthew Spiegel & Susan Wachter, 1999. "Do Cities and Suburbs Cluster?," Yale School of Management Working Papers ysm115, Yale School of Management, revised 01 May 1999.
    22. 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.
    23. Catherine Jackson, 2002. "Classifying Local Retail Property Markets on the Basis of Rental Growth Rates," Urban Studies, Urban Studies Journal Limited, vol. 39(8), pages 1417-1438, July.

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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