EconPapers    
Economics at your fingertips  
 

Regulation, Tax, and Interest Rate Implications for Commercial Real Estate Valuations: Lessons from the Past Half Century

John Duca, Patric Hendershott and David Ling

ERES from European Real Estate Society (ERES)

Abstract: In recent decades, problems in real estate have contributed much to U.S. business downturns and have challenged financial stability. Collapses in commercial real estate (CRE) prices sharply reduced construction outlays and—via their accompanying loan losses—induced bank credit crunches, thereby playing a large role in the recessions of 1990 and 2007-09 and the sluggish recoveries from them. Using quarterly data spanning a half century, our study begins by estimating how changes in taxes, interest rates, credit conditions, and capital requirements have affected CRE valuations for the four main types of commercial property. Using data covering several decades is needed because CRE activity tends to experience long cycles. We assess the extent to which CRE valuations respond to changes in macro-prudential capital requirements and real interest rates. We also develop models of office rents, vacancies and construction. Our results indicate that while current high valuations of CRE primarily reflect a low real interest rate environment, the impact on office construction has been muted by less pronounced changes in existing property prices relative to replacement costs.

Keywords: cap rates; CRE rent; Office Construction; vacancy rates (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2018-01-01
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://eres.architexturez.net/doc/oai-eres-id-eres2018-62 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2018_62

Access Statistics for this paper

More papers in ERES from European Real Estate Society (ERES)
Bibliographic data for series maintained by Architexturez Imprints ().

 
Page updated 2019-08-14
Handle: RePEc:arz:wpaper:eres2018_62