Real Estate and Economies of Scale: The Case of Reits

Real Estate Economics, Vol. 33, No. 2, 2005

Posted: 10 Jun 2011

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Michael J. Highfield

Mississippi State University - Department of Finance and Economics

Peter Linneman

University of Pennsylvania - Real Estate Department

Date Written: 2005

Abstract

Building on past research in the economies-of-scale debate, we test for scale economies in Real Estate Investment Trusts (REITs) by examining growth prospects, revenue and expense measures, profitability ratios, systematic risk and capital costs. Overall, we find that large REITs are increasing growth prospects while succeeding at lowering costs, leading to a direct relationship between firm profitability and firm size. Additionally, we find an inverse relationship between equity betas and firm size, and for all cost of capital measures we find significant scale economies. Further evidence from the stochastic frontier analysis suggests efficiency opportunities appear possible through continued growth and consolidation in REITs.

Suggested Citation

Ambrose, Brent W. and Highfield, Michael J. and Linneman, Peter D., Real Estate and Economies of Scale: The Case of Reits (2005). Real Estate Economics, Vol. 33, No. 2, 2005. Available at SSRN: https://ssrn.com/abstract=1862117

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Michael J. Highfield (Contact Author)

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

HOME PAGE: http://misweb.cbi.msstate.edu/mhighfield

Peter D. Linneman

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

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