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On Demand: Cross-Country Evidence From Commercial Real Estate Asset Markets

Author

Listed:
  • Steven H. Ott

    (Belk College of Business and Administration University of North Carolina at Charlotte)

  • Timothy J. Riddiough

    (School of Business University of Wisconsin ?Madison)

  • Ha-Chin Yi

    (McCoy College of Business Administration Texas State University-San Marcos)

  • Jiro Yoshida

    (Department of Economics, Tokyo University)

Abstract

Using over 25 years of quarterly U.S. 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

  • Steven H. Ott & Timothy J. Riddiough & Ha-Chin Yi & Jiro Yoshida, 2008. "On Demand: Cross-Country Evidence From Commercial Real Estate Asset Markets," International Real Estate Review, Global Social Science Institute, vol. 11(1), pages 1-37.
    • Handle: RePEc:ire:issued:v:11:n:01:2008:p:1-37
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    References listed on IDEAS

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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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    Keywords

    Investment; asset pricing; momentum effects; real estate;
    All these keywords.

    JEL classification:

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

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