Transaction based indices for the UK commercial real estate market: an exploration using IPD transaction data

Steven Devaney, Roberto Martinez Diaz

    Research output: Contribution to journalArticle

    17 Citations (Scopus)

    Abstract

    The nature of private commercial real estate markets presents difficulties for monitoring market performance. Assets are heterogeneous and spatially dispersed, trading is infrequent and there is no central marketplace in which prices and cash flows of properties can be easily observed. Appraisal based indices represent one response to these issues. However, these have been criticised on a number of grounds: that they may understate volatility, lag turning points and be affected by client influence issues. Thus, this paper reports econometrically derived transaction based indices of the UK commercial real estate market using Investment Property Databank (IPD) data, comparing them with published appraisal based indices. The method is similar to that presented by Fisher, Geltner, and Pollakowski (2007) and used by Massachusetts Institute of Technology (MIT) on National Council of Real Estate Investment Fiduciaries (NCREIF) data, although it employs value rather than equal weighting. The results show stronger growth from the transaction based indices in the run up to the peak in the UK market in 2007. They also show that returns from these series are more volatile and less autocorrelated than their appraisal based counterparts, but, surprisingly, differences in turning points were not found. The conclusion then debates the applications and limitations these series have as measures of market performance.
    Original languageEnglish
    Pages (from-to)269-289
    Number of pages21
    JournalJournal of Property Research
    Volume28
    Issue number4
    Early online date31 Aug 2011
    DOIs
    Publication statusPublished - 2011

    Keywords

    • transaction based indices
    • assessed value method
    • appraisal smoothing
    • sample selection effects
    • UK commercial real estate

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