Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data

Walter Diewert, Kiyohiko G. Nishimura, Chihiro Shimizu and Tsutomu Watanabe

Economics working papers from Vancouver School of Economics

Abstract: The paper proposes a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. The method is based on the present value approach, but the way in which current operating income and the capitalization rate are estimated differs from the traditional method. The traditional method uses a hedonic regression with appraisal information on properties as the dependent variable in order to estimate the capitalization factor. We compare this method with a method that replaces appraisal information with stock market valuations (adjusted for debt). We also run alternative hedonic regressions, restricting the sample of properties to those which are associated with new rental contracts, which may contain more information on future cash flows from properties. Using a dataset with prices and cash flows for about 400 commercial properties included in Japanese REITs for the period 2001 to 2013, we find that our price index signals turning points much earlier than an appraisal-based price index. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.

Keywords: Commercial property price indexes; REIT; quality adjusted price index; hedonic regressions; Tobin’s q; risk premium. (search for similar items in EconPapers)
JEL-codes: C23 C43 E31 G19 R21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-08-04, Revised 2015-08-04
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Estimating quality adjusted commercial property price indexes using Japanese REIT data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2013)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2013)
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