Price Dynamics in Public and Private Commercial Real Estate Markets

• Published in: The journal of real estate finance and economics Vol. 67; no. 1; pp. 150 - 190
• Main Authors: Fan, Ying, Yavas, Abdullah
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-07-2023; Springer Nature B.V
• Subjects: Business cycles; Commercial real estate; Contagion; Diversification; Economics; Economics and Finance; Financial Services; Markets; Policy making; Prices; Pricing policies; Regional/Spatial Science; Risk management; Time series; C53; C22; E30; G11; Commercial real estate prices; Wavelet coherency; Contagion effect; Wavelet decomposition
• ISSN: 0895-5638; 1573-045X
• DOI: 10.1007/s11146-020-09773-6

In this paper, we examine price dynamics, cycles and lead-lag relationships between private and public commercial real estate markets. We utilize wavelet technology to capture both the frequency and the time variations of a time series. We find that the long-run trend of prices in public commercial real estate markets is steeper than that of private commercial real estate markets. In addition, both short-term and long-term cycles are longer in the public market than the private market. We also find that the private market led the public market up until the recession of early 1990s and the public market has led the private market since then. Finally, we offer the first evidence of contagion between the two markets. We find that there is an increase in excess (high frequency) contagion between the two markets during periods of crisis, but not beyond the crises periods. An understanding of co-movements of real estate prices across these two markets is of crucial importance policy makers and for maximizing portfolio diversification benefits and managing risk.