Economic Policy Uncertainty and Commercial Property Performance: An In-Depth Analysis of Rents and Capital Values

Albert Agbeko Ahiadu (), Rotimi Boluwatife Abidoye and Tak Wing Yiu
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Albert Agbeko Ahiadu: School of Built Environment, University of New South Wales, Sydney, NSW 2052, Australia
Rotimi Boluwatife Abidoye: School of Built Environment, University of New South Wales, Sydney, NSW 2052, Australia
Tak Wing Yiu: School of Built Environment, University of New South Wales, Sydney, NSW 2052, Australia

IJFS, 2024, vol. 12, issue 3, 1-19

Abstract: Economic uncertainty has steadily increased in response to a series of unforeseen shocks, notably the Global Financial Crisis, Brexit, COVID-19, and the Russia–Ukraine war. This study examined the impact of economic uncertainty on rents and capital values in Australia’s office, retail, and industrial property sectors. The reactions of these performance indicators to national uncertainty shocks were assessed through reduced-form vector autoregressive (VAR) models, using quarterly data from 2001Q1 to 2022Q3. Overall, there is an inverse relationship between uncertainty and commercial property performance, with notable variations in magnitude and persistence across the different subsectors. Rents are more sensitive to external shocks across all three subsectors, highlighting their role as signals of short-term performance. Following one standard deviation shock in uncertainty, rents steadily declined for approximately three years in the office and retail subsectors. Industrial rents, however, exhibited muted reactions and recovered quicker, typically within five quarters. This resilience to external shocks displayed by the industrial subsector positions it as a compelling option for defensive investment strategies and portfolio diversification. Capital values are less reactive than rents, showing minimal responses to uncertainty shocks and little long-term persistence.

Keywords: economic uncertainty; commercial property; rents; capital values; office; retail; industrial; impulse response; Australia (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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