Expected Returns and Expected Growth in Rents of Commercial Real Estate

• 成果类型: Article
• 署名作者: Plazzi, Alberto; Torous, Walter; Valkanov, Rossen
• 署名单位: University of California System; University of California San Diego; University of California System; University of California San Diego
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhq069
• 发表日期: 2010
• 页码: 3469
• 关键词: VARIANCE DECOMPOSITION; PORTFOLIO SELECTION; STOCK; prices; RISK

摘要

Commercial real estate expected returns and expected rent growth rates are time-varying. Relying on transactions data from a cross-section of U.S. metropolitan areas, we find that up to 30% of the variability of realized returns to commercial real estate can be accounted for by expected return variability, while expected rent growth rate variability explains up to 45% of the variability of realized rent growth rates. The cap rate-that is, the rent-price ratio in commercial real estate-captures fluctuations in expected returns for apartments and retail properties, as well as industrial properties. For offices, by contrast, cap rates do not forecast (in-sample) returns even though expected returns on offices are also time-varying. As implied by the present value relation, cap rates marginally forecast office rent growth but not rent growth of apartments, retail properties, and industrial properties. We link these differences in in-sample predictability to differences in the stochastic properties of the underlying commercial real estate data-generating processes. Also, rent growth predictability is observed mostly in locations characterized by higher population density and stringent land-use restrictions. The opposite is true for return predictability. The dynamic portfolio implications of time-varying commercial real estate returns are also explored in the context of a portfolio manager investing in the aggregate stock market and Treasury bills, as well as commercial real estate.