Implicit Forward Rents as Predictors of Future Rents

Implicit Forward Rents as Predictors of Future Rents 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., control for characteristics), but should also be maturity constant. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Real Estate Economics Wiley

Implicit Forward Rents as Predictors of Future Rents

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Publisher
Wiley
Copyright
Copyright © 2004 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1080-8620
eISSN
1540-6229
DOI
10.1111/j.1080-8620.2004.00089.x
Publisher site
See Article on Publisher Site

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., control for characteristics), but should also be maturity constant.

Journal

Real Estate EconomicsWiley

Published: Jun 1, 2004

References

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