The Symphony of Markets: Public Listings, Interest Rates and Commercial Property Market Dynamics

In this study, we examine the potential effects of interest rates and initial public offering (IPO) activities on the dynamics of commercial property markets. Using a panel data sample covering markets of five property types (office, industrial property, retail property, hotel, and apartment) across 54 major U.S. cities, and incorporating information on IPOs headquartered in these cities from 2000 to 2018, our analysis suggests the presence of positive externalities of IPOs on local commercial property markets, via enhancing these markets’ performances and/or reducing their risks. The extent of these externalities varies across different property types, with office and industrial property markets experiencing more pronounced effects. Furthermore, these effects are more robust in more densely populated areas, and more immediate during economic expansions while delayed during economic contractions. We also find that the market performance (risk) of all commercial property types consistently improves (declines) with reduced interest rates. Additionally, there is strong evidence that lower interest rates lead to higher aggregate IPO proceeds, with effects observed in both the short run and the long run. Our study indicates the diverse ways in which macroeconomic policy changes, such as interest rate changes, can influence the commercial property markets. While the direct impacts are clear, for instance, commercial mortgage loan rates are closely tied to interest rates, there are also indirect effects such as changes in the stock market, including IPO activities, can affect the broader economic environment and subsequently impact the commercial property markets.