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Implicit Forward Rents as Predictors of Future Rents
Author(s) -
Englund Peter,
Gunnelin Åke,
Hoesli Martin,
Söderberg Bo
Publication year - 2004
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/j.1080-8620.2004.00089.x
Subject(s) - economic rent , renting , economics , econometrics , constant (computer programming) , microeconomics , index (typography) , term (time) , maturity (psychological) , engineering , computer science , physics , psychology , developmental psychology , civil engineering , quantum mechanics , world wide web , programming language
This paper investigates the relation between the term structure of rents and future spot rents. A rich database of office rental agreements for various maturities is used to estimate the term structure of rents, and from this structure implicit forward rents are extracted. The data pertain to commercial properties in the three largest Swedish cities for the period 1998–2002. A positive relation between forward and spot rents is found in some regions, but forward rents underestimate future rent levels. Another contribution of the paper lies in the area of rental index construction. We provide evidence that rental indices should not only be quality constant ( i.e. , control for characteristics), but should also be maturity constant.