Do Commercial Real Estate Prices Have Predictive Content for GDP

Bert de Groot and Philip Hans Franses

No EI 2012-12, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Using a uniquely compiled database concerning rental prices of commercial real estates, which are property of the largest broker in the Netherlands, we examine if these prices have predictive value for quarterly economic growth. In contrast to related studies, we document that the mean price contains no relevant information, whereas other properties of the price distributions have. We show that these distributions can be described by mixtures of two distributions, reflecting low-end and high-end price segments. Our main findings are that higher economic growth is predictable from more new buildings being rented, more variation in the price levels and a larger size of the low-price segment, while lower economic growth emerges when the differences in prices between high-end and low-end segments increase and when the average price level in the low-price segment increases.

Date: 2012-06-01
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Journal Article: Do commercial real estate prices have predictive content for GDP? (2013)
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