A Regime‐Switching Approach to Modeling Rental Prices of U.K. Real Estate Sectors

Posted: 23 May 2012

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Michael Stein

University of Duisburg-Essen

Joachim Zietz

EBS University, EBS Business School

Date Written: Summer 2012

Abstract

This article uses regime‐switching models of the threshold type to analyze the adjustment process of rental prices for three U.K. commercial real estate sectors over the period 1974–2008. The nonlinear models outperform their linear counterparts in in‐sample fit. Their out‐of‐sample forecasting ability is better whenever the corresponding linear models contain a significant amount of neglected nonlinearity. Regime switches are triggered when the growth rates of rental price exceed certain threshold levels. For the industrial and retail sectors such regime switches occur in situations of strong excess demand, for the office sector they occur when there is strong excess supply.

Suggested Citation

Füss, Roland and Stein, Michael and Zietz, Joachim, A Regime‐Switching Approach to Modeling Rental Prices of U.K. Real Estate Sectors (Summer 2012). Real Estate Economics, Vol. 40, Issue 2, pp. 317-350, 2012. Available at SSRN: https://ssrn.com/abstract=2065138 or http://dx.doi.org/10.1111/j.1540-6229.2011.00316.x

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Michael Stein

University of Duisburg-Essen ( email )

Universitätsst. 12
Duisburg, 45117
Germany

HOME PAGE: http://www.fmoek.wiwi.uni-due.de/

Joachim Zietz

EBS University, EBS Business School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

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