Non-technical summary

Research Question

The need for information on current developments in the commercial real estate markets has increased considerably since the global financial crisis of 2007-08. Price, rent and yield indicators as well as information on vacancies in office, retail and rental housing markets are essential when analysing financial stability. Since then, official statisticians have made considerable efforts to develop suitable datasets, enhance statistical methodologies and resolve practical challenges that arise when calculating indicators.

Contribution

At the individual property level, there is a mathematical relationship between market price, rental income, yield and vacancy. We argue that this relationship should also be present at the level of the aggregated indicators. We call this property “macro-consistency”. Macro-consistency increases the informative value of the data in macroeconomic and macroprudential analysis. The conditions for macro-consistency include requirements for the completeness and structure of the granular or sub-aggregated dataset needed to calculate the indicators, the definition of the indicators, and their weighting in the aggregation.

Results

A macro-consistent set of core indicators for the commercial real estate market may consist of a price index, a gross rental index, a net yield index and a vacancy rate. In order to achieve macro consistency, prices and price-determining characteristics as well as information on rental income and vacancies must be available in full and in a consistent form for all observation units to calculate indicators based on granular or sub-aggregated data. In addition, when aggregating, price and yield indices need to be weighted with the capital value; rent indices and vacancy ratios need to be weighted with the rental value.

Using the German office market as a case study, we demonstrate that there are empirically significant differences between the commercial real estate market developments shown by macro-consistent indicators and those suggested by alternative indicators.