Flight to Quality? An Investigation of Changing Price Spreads in Commercial Real Estate Markets

Posted: 19 Apr 2011 Last revised: 16 Jan 2015

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning

Petros Sivitanides

Torto Wheaton Research

Date Written: April 13, 2011

Abstract

This paper uses sales transaction data in order to examine whether flight from risk phenomena took place in the US office market during the financial crisis of 2007-2009. The effect of the crisis on the pricing of asset quality attributes, mainly summarized by the class category of each building, is investigated. In addition, the paper examines how turnover levels were affected by the market downturn and whether there were significant variations between different real estate quality types. The results of the hedonic regression models suggest that the price spread between Class, A and B or C grew significantly during the downturn. We also find that property attributes such as size, height and age are priced significantly differently during upturns and downturns of the market.

Keywords: commercial real estate cycles, risk aversion, price spreads, pricing of property attributes

JEL Classification: E32, D4, D92, G11, R33

Suggested Citation

Fuerst, Franz and McAllister, Patrick M. and Sivitanides, Petros, Flight to Quality? An Investigation of Changing Price Spreads in Commercial Real Estate Markets (April 13, 2011). Available at SSRN: https://ssrn.com/abstract=1808689 or http://dx.doi.org/10.2139/ssrn.1808689

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street, Carlton, Victoria 3053
Melbourne, Victoria 3010
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

Petros Sivitanides

Torto Wheaton Research ( email )

333 S. Beaudry Ave., 9th Floor
West Coast Office
Los Angeles, CA 90017
United States
213-613-3097 (Phone)
213-613-3228 (Fax)

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