Property and Inflation: The Hedging Characteristics of U.K. Commercial Property, 1967–1994

Property and Inflation: The Hedging Characteristics of U.K. Commercial Property, 1967–1994 This paper examines the statistical similarities between U.K. commercial property capital and rental values and the price level. Our aim is to determine whether commercial property is an inflation hedge and, if so, what type of inflation it hedges against. To answer these questions, we use both a multivariate unobserved components model and structural vector autoregressions. We find that commercial property is an inflation hedge but only a weak one. More specifically, we find that property offers some form of partial hedge against changes in the underlying inflation rate but not to either temporary or permanent changes to the price level. We also find that capital values offer a stronger hedge than rental values and that industrial and retail property account for most of this hedging capacity. We find no evidence that property responds differently to high or low inflation but we do find capital and rental values respond more to unexpected inflation than anticipated price changes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Property and Inflation: The Hedging Characteristics of U.K. Commercial Property, 1967–1994

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1007749305400
Publisher site
See Article on Publisher Site

Abstract

This paper examines the statistical similarities between U.K. commercial property capital and rental values and the price level. Our aim is to determine whether commercial property is an inflation hedge and, if so, what type of inflation it hedges against. To answer these questions, we use both a multivariate unobserved components model and structural vector autoregressions. We find that commercial property is an inflation hedge but only a weak one. More specifically, we find that property offers some form of partial hedge against changes in the underlying inflation rate but not to either temporary or permanent changes to the price level. We also find that capital values offer a stronger hedge than rental values and that industrial and retail property account for most of this hedging capacity. We find no evidence that property responds differently to high or low inflation but we do find capital and rental values respond more to unexpected inflation than anticipated price changes.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Sep 30, 2004

References

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