Open AccessInternational Real Estate Review
Author(s) -
Richard Evans,
Glenn R. Mueller
Publication year - 2016
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100223
Subject(s) - real estate , recession , trough (economics) , markov chain , cash flow , occupancy , property market , econometrics , business cycle , order (exchange) , economics , point (geometry) , discounted cash flow , business , finance , statistics , mathematics , engineering , macroeconomics , architectural engineering , geometry
Metro market real estate cycles for office, industrial, retail, apartment, and hotel properties may be specified as first order Markov chains, which allow analysts to use a well-developed application, ¡§staying time¡¨. Anticipations for time spent at each cycle point are consistent with the perception of analysts that these cycle changes speed up, slow down, and pause over time. We find that these five different property types in U.S. markets appear to have different first order Markov chain specifications, with different staying time characteristics. Each of the five property types have their longest mean staying time at the troughs of recessions. Moreover, industrial and office markets have much longer mean staying times in very poor trough conditions. Most of the shortest mean staying times are in hyper supply and recession phases, with the range across property types being narrow in these cycle points. Analysts and investors should be able to use this research to better estimate future occupancy and rent estimates in their discounted cash flow (DCF) models.