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Real Estate Cycles and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy

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Abstract

This study synthesizes relevant research and commentary on real estate cycles in a micro-decision-making context and discusses their strategic implications for investors and portfolio managers. It begins with an extensive review of the macro-economic, micro-economic and practitioner literature on cycles, with special emphasis given to the emerging topic of global real estate cycles. The second major section of the study presents the basic theory of cycles, examines the nature and dynamics of real estate cycles, identifies the many different types of interdependent cycles that affect real estate performance and presents strategies for dealing with multiple interrelated cycles. Understanding the complex and dynamic macro-to-micro cycle relationships is believed to be the foundation for understanding real property performance in a specific market, submarket and site-specific location. Successful cycle strategies that achieve above-market returns over the long run are dependent on this understanding, good market timing and a degree of contrarianism. Eight cycle models are presented in the third major section of the study. Each presents an analytical definition of cycles, seeks to measure cyclical impacts on key investment variables in an ex ante framework and provides insight into some aspect of investment timing or other property/ portfolio decisions. The final major topics addressed are the key strategic and decision implications for investors and portfolio managers, and a proposed cycles research agenda for the future.

Suggested Citation

  • Stephen A. Pyhrr & Stephen E. Roulac & Waldo L. Born, 1999. "Real Estate Cycles and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 7-68.
  • Handle: RePEc:jre:issued:v:18:n:1:1999:p:7-68
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    References listed on IDEAS

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    1. 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.
    2. Stephen A. Pyhrr & Waldo L. Born & James R. Webb, 1990. "Development of a Dynamic Investment Strategy under Alternative Inflation Cycle Scenarios," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 177-194.
    3. Jos Janssen & Bert Kruijt & Barrie Needham, 1994. "The Honeycomb Cycle in Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 9(2), pages 237-252.
    4. 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.
    5. Satyajit Chatterjee, 1999. "Real business cycles: a legacy of countercyclical policies?," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 17-27.
    6. John S. Hekman, 1985. "Rental Price Adjustment and Investment in the Office Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 32-47.
    7. Richard Voith & Theodore Crone, 1988. "National Vacancy Rates and the Persistence of Shocks in U.S. Office Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 437-458.
    8. Wheaton, William C & Torto, Raymond G & Evans, Peter, 1997. "The Cyclic Behavior of the Greater London Office Market," The Journal of Real Estate Finance and Economics, Springer, vol. 15(1), pages 77-92, July.
    9. Barry Ziering & Elaine M. Worzala, 1997. "The Real Estate Research Interests of the Plan Sponsor Community: Survey Results," Journal of Real Estate Research, American Real Estate Society, vol. 13(2), pages 115-144.
    10. Mark Gallagher & Antony P. Wood, 1999. "Fear of Overbuilding in the Office Sector: How Real is the Risk and Can We Predict It?," Journal of Real Estate Research, American Real Estate Society, vol. 17(1), pages 3-32.
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    Cited by:

    1. William Miles, 2009. "Housing Investment and the U.S. Economy: How Have the Relationships Changed?," Journal of Real Estate Research, American Real Estate Society, vol. 31(3), pages 329-350.
    2. Barrett, Alan & Kearney, Ide & Goggin, Jean, 2008. "Quarterly Economic Commentary, Winter 2008," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20084, April.
    3. Serafeim POLYZOS & Dionisios MINETOS & Spyros NIAVIS, 2013. "Driving Factors And Empirical Analysis Of Urban Sprawl In Greece," Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 8(1), pages 5-29, February.
    4. David Gray, 2015. "Hidden Properties of Irish House Price Vintages," Housing Studies, Taylor & Francis Journals, vol. 30(8), pages 1317-1353, November.
    5. Kim Hiang Liow, 2007. "Cycles and common cycles in real estate markets," International Journal of Managerial Finance, Emerald Group Publishing, vol. 3(3), pages 287-305, July.
    6. Roland Füss & Felix Schindler, 2011. "Diversifikationsvorteile verbriefter Immobilienanlagen in einem Mixed‐Asset‐Portfolio," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(2), pages 170-191, May.
    7. repec:taf:oaefxx:v:3:y:2015:i:1:p:993860 is not listed on IDEAS
    8. Marcel Arsenault & Jim Clayton & Liang Peng, 2013. "Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 243-265, August.
    9. McCartney, John, 2008. "An Empirical Analysis of Development Cycles in the Dublin Office Market 1976-2007," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2008(4-Winter), pages 68-92.

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    JEL classification:

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

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