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Forecasting UK real estate cycle phases with leading indicators: a probit approach

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Kyrstaloyianni, A., Matysiak, G. and Tsolacos, S., (2004) Forecasting UK real estate cycle phases with leading indicators: a probit approach. Working Papers in Real Estate & Planning. 15/04. Working Paper. University of Reading, Reading. pp20.

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Abstract/Summary

This paper examines the significance of widely used leading indicators of the UK economy for predicting the cyclical pattern of commercial real estate performance. The analysis uses monthly capital value data for UK industrials, offices and retail from the Investment Property Databank (IPD). Prospective economic indicators are drawn from three sources namely, the series used by the US Conference Board to construct their UK leading indicator and the series deployed by two private organisations, Lombard Street Research and NTC Research, to predict UK economic activity. We first identify turning points in the capital value series adopting techniques employed in the classical business cycle literature. We then estimate probit models using the leading economic indicators as independent variables and forecast the probability of different phases of capital values, that is, periods of declining and rising capital values. The forecast performance of the models is tested and found to be satisfactory. The predictability of lasting directional changes in property performance represents a useful tool for real estate investment decision-making.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:21521
Publisher:University of Reading
Publisher Statement:The copyright of each working paper remains with the author. If you wish to quote from or cite any paper please contact the appropriate author; in some cases a more recent version of the paper may have been published elsewhere.

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