Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data

Chihiro Shimizu, Walter Diewert, Kiyohiko Nishimura and Tsutomu Watanabe
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Chihiro Shimizu: Reitaku University
Kiyohiko Nishimura: University of Tokyo
Tsutomu Watanabe: University of Tokyo

No 48, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: We propose a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. Our method is based on the present value approach, but the way the denominator (i.e., the discount rate) and the numerator (i.e., cash flows from properties) are estimated differs from the traditional method. We run a hedonic regression to estimate the quality adjusted discount rate based on the share prices of REITs, which can be regarded as the stock market’s valuation of the set of properties owned by the REITs. As for the numerator, we use rental prices associated only with new rental contracts rather than those associated with all existing contracts. Using a dataset with prices and cash flows for about 400 commercial properties included in Japanese REITs for the period 2001 to 2013, we find that our price index signals turning points much earlier than an appraisal-based price index; specifically, our index peaks in the second quarter of 2007, while the appraisal-based price index exhibits a turnaround only in the third quarter of 2008. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.

Keywords: REIT; quality adjusted price index; hedonic regression; Tobin’s q; risk premium (search for similar items in EconPapers)
JEL-codes: E3 G19 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2015-02
New Economics Papers: this item is included in nep-mac and nep-ure
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Estimating quality adjusted commercial property price indexes using Japanese REIT data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2013)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2013)
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