Commercial Real Estate Prices and Stock Market Returns: An International Analysis

Abstract

The movement towards the "globalization" of institutional investments necessitates an understanding of the historical relationship between international commercial real estate price changes and stock returns. Existing studies have focused on the time-series of stock and real estate returns using data from a single country, like the US. By necessity, these studies examine returns and price changes over short intervals creating a bias when property values are smoothed from year to year. This paper examines the relation between stock returns and changes in property values and rents on data from 17 different countries.Although we find no relation between real estate values and rents and stock returns in the U.S., we find significant relations in a number of different countries. When the data is pooled, we find a very strong relation between stock returns and both value changes and changes in rental rates.

Transparency, Integration, and the Cost of International Real Estate Investments

“…Studies of international diversification effects within mixed-asset portfolios, like Quan and Titman (1997) and Hoesli et al (2004) provide evidence that there are gains from international diversification in direct property investments. Liu and Mei (1998) and Conover et al (2002) confirm these results for indirect property investments.…”

What Factors Determine International Real Estate Security Returns?

“…Case et al (1997) fìnd that returns to commercial real estate tend to move together (dthough not perfectly) across property types within each country, and that international diversification within three segments of the real estate market (industrial, office and retail) would have been benefícial over the period 1986-1994. Quan and Titman (1997 report that U.S. real estate cotrelations are lower than those of stock returns, suggesting significant bene& from international real estate diversifïcation (see also Newell and Webb, 1996).…”

Do house prices influence stock prices? Empirical investigation from the panel of selected European Union countries

“…The results of both studies postulated that real estate prices and stock returns are not bounded in an interacting relation in the case of US markets (Quan & Titman, 1997, 1999. The interlinking between real estate and stock market using data from Hong Kong and the UK is examined.…”