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Determinants of the Rate of Return for Nonresidential Real Estate: Inflation Expectations and Market Adjustment Lags
Author(s) -
Dokko Yoon,
Edelstein Robert H.,
Pomer Marshall,
Urdang E. Scott
Publication year - 1991
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00540
Subject(s) - real estate , economics , inflation (cosmology) , shock (circulatory) , macro , econometrics , real interest rate , rate of return , capitalization rate , monetary economics , financial economics , interest rate , real estate investment trust , finance , medicine , physics , theoretical physics , computer science , programming language
This paper analyzes the economic forces that determine the real rate of return for nonresidential real estate. Our analysis shows that the intermarket variation in the real rate of return is statistically significant, and the rate of return differs by land use and market area, as well as over time in response to changes in macro‐economic conditions. We use inflation variables as surrogates for changes in macroeconomic conditions over time. In contrast to earlier studies, we find that nonresidential real estate may not outperform expected inflation. We believe that the impact of expected inflation (and other macroeconomic variables) on real estate rates of return depends upon the interaction of the macro‐environment and specific local real estate market conditions. Finally, our empirical evidence suggests that the effects of a given shock dissipate rather quickly in most markets when we take into account locational and property use differences.