Commercial Real Estate, Information Production and Market Activity
Posted: 14 Feb 2013
Date Written: 2013
This paper addresses several issues related to the production of information across commercial real estate markets. The purpose is to determine the extent to which factors of production might complement or substitute for one another. A simple model is presented to illustrate the potential trade-offs between appraisal- and transactions-based information production. A series of empirical tests are performed on a panel data set constructed for 51 markets covering nine years, 2001 through 2009. The number of commercial appraisers (i.e., certified general appraisers) and the number of commercial property transactions are used as proxies for information production. Overall, the results support the substitution hypothesis. Additional analyses examine a broader definition of appraisal-based information production, as well as the influence of market transparency on the main findings of this paper. Findings based on these additional analyses indicate that the trade-off between appraisal- and transactions-based information productions is more pronounced in transparent markets. We conclude that appraisal-based information as a factor of production is, potentially, most critical in markets or conditions where the information environment is incomplete (i.e., transactions are scarce or the information regarding transactions is not public).
Keywords: information, markets, real estate, valuation
JEL Classification: G10, G14, R33
Suggested Citation: Suggested Citation