Commercial Real Estate in Crisis: Evidence from Transaction-Level Data

Commercial Real Estate in Crisis: Evidence from Transaction-Level Data
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Volume/Issue: Volume 2023 Issue 015
Publication date: January 2023
ISBN: 9798400230899
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , Demography , Non-residential Real Estate , Financial Conditions , Liquidity , Big Data , level data , CRE price , household indebtedness , CRE market , CRE transaction , COVID-19 , Real estate prices , Global financial crisis of 2008-2009 , Global , Middle East and Central Asia

Summary

During the past two decades, the commercial real estate (CRE) market has been impacted by major disruptions, including the global financial crisis and the Covid-19 pandemic. Using granular data from the U.S., we document how these crises have unfolded and elaborate on the role of heterogeneity and underlying shocks. Both a set of reduced-form approaches and a structural framework suggest a prominent role for demand-side local factors in the short run, along with significant shifts in preferences during crisis episodes. However, valuations become more closely linked to macro-financial factors over the long term. A one-standard deviation tightening in financial conditions is associated with a drop of about 3% in CRE prices in the following quarter, with a stronger impact on the retail sector and milder effects in states where household indebtedness is lower.