Why are Reits Currently so Expensive?

48 Pages Posted: 20 Feb 2019

See all articles by Stijn Van Nieuwerburgh

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); New York University Stern School of Business, Department of Finance

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Date Written: Spring 2019

Abstract

Over the last several years, the price of listed real estate stocks has been unusually high relative to dividends. I find that neither low interest rates nor low risk premia can account for the high valuation ratios. Lower interest rates have been offset by rising risk premia to keep expected returns close to average. Instead, the market has priced in future income growth on commercial properties far above the growth rates seen in the data. High implied growth rates are less extreme for nontraditional REIT sectors. Income growth expectations are also less extreme for international listed real estate.

Suggested Citation

Van Nieuwerburgh, Stijn, Why are Reits Currently so Expensive? (Spring 2019). Real Estate Economics, Vol. 47, Issue 1, pp. 18-65, 2019. Available at SSRN: https://ssrn.com/abstract=3335355 or http://dx.doi.org/10.1111/1540-6229.12238

Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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New York University Stern School of Business, Department of Finance ( email )

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