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

The movement towards the quot;globalizationquot; 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 U.S. 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