NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Office Market Values During the Past Decade: How Distorted Have Appraisals Been?

Patric Hendershott, Edward J. Kane

NBER Working Paper No. 4128
Issued in July 1992
NBER Program(s):   CF

This paper develops evidence that, in a declining market, appraisal values may lag notably behind analytical measures of the discounted present value of commercial property cash flows. For the period 1982-92, alternative measures of the economic value of constant-quality office buildings are constructed using two benchmark projections designed to bracket expected future vacancy rates and real rents. Until 1992, the time path for both benchmark series lie consistently below that developed from the appraisal-based Russell/NCREIF office market index. This divergence implies that the rate of price appreciation reported by the Russell/NCREIF index is distorted: being slow to register price declines when markets first weaken and then having to overstate the rate of decline once the market begins to bottom out. The distortion may reflect incentives for investment managers and appraisers to smooth potentially temporary price volatility, as well as systematic differences in the character and condition of the properties that tend to trade at different stages of the real estate cycle.

download in pdf format
   (559 K)

email paper

This paper is available as PDF (559 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4128

Published: Journal of Real Estate Economics, vol. 23, (Summer 1995), pp. 101-116.

Users who downloaded this paper also downloaded these:
Hendershott w4775 Rental Adjustment & Valuation of Real Estate in Overbuilt Markets: Fundamental vs. Reported Office Market Values in Sydney Australia
Fisher The Market for Residential Leaseholds
Hendershott, MacGregor, and Tse w7912 Estimating the Rental Adjustment Process
Abel and Blanchard w1122 The Present Value of Profits and Cyclical Movements in Investment
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us