Implicit Forward Rents as Predictors of Future Rents

Peter Englund, Åke Gunnelin, Martin Hoesli and Bo Söderberg
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Peter Englund: Stockholm Institute for Financial Research, Stockholm School of Economics
Åke Gunnelin: Stockholm Institute for Financial Research
Bo Söderberg: Royal Institute of Technology

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: This paper investigates the relation between the term structure of rents and future spot rents. A rich database of office rental agreements for various maturities is used to estimate the term structure of rents, and from this structure implicit forward rents are extracted. The data pertain to commercial properties in the three largest Swedish cities for the period 1998-2002. A positive relation between forward and spot rents is found in some regions, but forward rents underestimate future rent levels. Another contribution of the paper lies in the area of rental index construction. We provide evidence that rental indices should not only be quality-constant (i.e. indices should not only control for the characteristics of rental units), but should also be maturity-constant.

Keywords: Term Structure; Expectations Hypothesis; Forward Rents; Rental Index Construction (search for similar items in EconPapers)
JEL-codes: C21 C22 R33 (search for similar items in EconPapers)
Date: 2002-10
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Implicit Forward Rents as Predictors of Future Rents (2004)
Working Paper: Implicit Forward Rents as Predictors of Future Rents (2002)
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