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Econometric Integration of Real Estate's Space and Capital Markets

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Abstract

This study presents the Real Estate Econometric Forecast Model (REEFM), a pooled recursive system that integrates real estate’s space and capital markets. The REEFM is empirically estimated using data from fifty-one metropolitan office markets over the years 1985–96. The core of the REEFM consists of six stochastic equations for each property type. These six equations predict occupancy, real rents, capitalization rates, market value per square foot, net change in stock and real construction costs. The model also produces synthetic investment return series called Implied Market Returns that can be used to guide investment acquisition activity and assess the representativeness of other investment returns.

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  • Timothy W. Viezer, 1999. "Econometric Integration of Real Estate's Space and Capital Markets," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 503-519.
  • Handle: RePEc:jre:issued:v:18:n:3:1999:p:503-519
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    References listed on IDEAS

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    1. David Guilkey & Mike Miles & Rebel Cole, 1989. "The Motivation for Institutional Real Estate Sales and Implications for Asset Class Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 70-86.
    2. Patric H. Hendershott & David C. Ling, 1984. "Prospective Changes in Tax Law and the Value of Depreciable Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 297-317.
    3. William C. Wheaton & Raymond G. Torto, 1990. "An Investment Model of the Demand and Supply For Industrial Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 530-547.
    4. Smith, Lawrence B, 1974. "A Note on the Price Adjustment Mechanism for Rental Housing," American Economic Review, American Economic Association, vol. 64(3), pages 478-481, June.
    5. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    6. Stuart A. Gabriel & Frank E. Nothaft, 1988. "Rental Housing Markets and the Natural Vacancy Rate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 419-429.
    7. Graff, Richard A & Young, Michael S, 1996. "Real Estate Return Correlations: Real-World Limitations on Relationships Inferred from NCREIF Data," The Journal of Real Estate Finance and Economics, Springer, vol. 13(2), pages 121-142, September.
    8. Denise DiPasquale & William C. Wheaton, 1992. "The Markets for Real Estate Assets and Space: A Conceptual Framework," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 181-198.
    9. 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.
    10. 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.
    11. John L. Glascock & Shirin Jahanian & C. F. Sirmans, 1990. "An Analysis of Office Market Rents: Some Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(1), pages 105-119.
    12. Geltner, David & Mei, Jianping, 1995. "The Present Value Model with Time-Varying Discount Rates: Implications for Commercial Property Valuation and Investment Decisions," The Journal of Real Estate Finance and Economics, Springer, vol. 11(2), pages 119-135, September.
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    Cited by:

    1. Joseph DeSalvo, 2017. "Teaching the DiPasquale-Wheaton Model," Working Papers 0117, University of South Florida, Department of Economics.
    2. Fuerst, Franz, 2006. "Predictable or Not? Forecasting Office Markets with a Simultaneous Equation Approach," MPRA Paper 5262, University Library of Munich, Germany.
    3. Patric H. Hendershott & Bryan D. MacGregor, 2005. "Investor Rationality: Evidence from U.K. Property Capitalization Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(2), pages 299-322, June.
    4. Franz Fuerst, 2004. "Forecasting the Manhattan office market with a simultaneous equation model," Urban/Regional 0410006, EconWPA.

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    JEL classification:

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

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