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Commercial Real Estate Rental Index: A Dynamic Panel Data Model EstimationXudong AnSan Diego State University - Department of Finance Yongheng DengNational University of Singapore (NUS) - Institute of Real Estate Studies; National University of Singapore Jeffrey D. FisherIndiana University Maggie Rong HuNational University of Singapore - Department of Finance; National University of Singapore (NUS) - Centre for Asset Management Research & Investments (CAMRI) November 1, 2012 Abstract: Based on the quarterly actual rental income of over 9,000 NCREIF commercial properties during 2001Q2-2010Q2, we construct a commercial real estate rental index using a dynamic panel data model. The rental index we construct captures the market-wide fluctuations in rental income, and our model estimates show that market-wide rent growth is mean-reverting and older properties tend to have consistently lower rent growth. We also provide a new measure of rental income risk, which is the volatility of the rental index we estimate from our model. In addition, our model provides additional tools for rent growth prediction. In contrast to the existing literature, we find a strong negative relation between cap rate and our rent growth estimate, consistent with theoretical predictions. Moreover, our rent growth estimate, together with mortgage interest rate and availability of financing, explains 85% of the cap rate variations during our study period.
Number of Pages in PDF File: 42 working papers seriesDate posted: January 23, 2013Suggested CitationContact Information
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