Implicit Forward Rents as Predictors of Future Rents

FAME Research Paper No. 59

43 Pages Posted: 15 May 2003

See all articles by Martin Hoesli

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Geneva - Research Center for Statistics; University of Aberdeen - Business School

Peter Englund

Swedish House of Finance

Ake Gunnelin

Royal Institute of Technology (KTH) - Department of Real Estate and Construction Management

Bo Soederberg

University of Gävle - Department of Business Administration

Date Written: October 2002

Abstract

This paper investigates the relation between the term structure of rents and future spot rents. A rich database of office rental agreements for various maturities is used to estimate the term structure of rents, and from this structure implicit forward rents are extracted. The data pertain to commercial properties in the three largest Swedish cities for the period 1998-2002. A positive relation between forward and spot rents is found in some regions, but forward rents underestimate future rent levels. Another contribution of the paper lies in the area of rental index construction. We provide evidence that rental indices should not only be quality-constant (i.e. indices should not only control for the characteristics of rental units), but should also be maturity-constant.

Keywords: Term Structure, Expectations Hypothesis, Forward Rents, Rental Index Construction

JEL Classification: R33, C21, C22

Suggested Citation

Hoesli, Martin Edward Ralph and Englund, Peter and Gunnelin, Ake and Soederberg, Bo, Implicit Forward Rents as Predictors of Future Rents (October 2002). FAME Research Paper No. 59. Available at SSRN: https://ssrn.com/abstract=372161 or http://dx.doi.org/10.2139/ssrn.372161

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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Geneva 4, 1211
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+41 22 379 8104 (Fax)

Swiss Finance Institute

c/o University of Geneva
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University of Geneva - Research Center for Statistics ( email )

Geneva
Switzerland

University of Aberdeen - Business School ( email )

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Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Peter Englund

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Ake Gunnelin

Royal Institute of Technology (KTH) - Department of Real Estate and Construction Management ( email )

SE-100 44 Stockholm
Sweden

Bo Soederberg

University of Gävle - Department of Business Administration ( email )

801 76 Gavle
Sweden

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