Panel modelling of retail yields in Asia‐Pacific cities
| DOI | https://doi.org/10.1108/14635780910951948 |
| Pages | 224-237 |
| Date | 24 April 2009 |
| Published date | 24 April 2009 |
| Author | Sotiris Tsolacos,Kyung‐Min Kim,Ruijue Peng |
| Subject Matter | Property management & built environment |
Panel modelling of retail yields
in Asia-Pacific cities
Sotiris Tsolacos
Property and Portfolio Research, London, UK, and
Kyung-Min Kim and Ruijue Peng
Property & Portfolio Research, Boston, Massachusetts, USA
Abstract
Purpose – The purpose of this paper is to examine the variation and dispersion of prime retail yields
in eight Asia-Pacific centres. It seeks to provide empirical evidence on the significance of real estate
and capital market influences as systematic drivers of retail yields in the sample of eight cities. The
aim is to build a model that enables market participants to obtain base case yield forecasts.
Design/methodology/approach – A panel model is deployed in this study utilising a database of
yields of eight years (2001-2007). The small number of observations for retail yields across cities is
addressed with this approach, which combines time-series and cross-section data. A fixed-effect
specification allows for city specific influences that partially capture the heterogeneity of cities in the
sample. Within this framework the influence of time varying factors across markets and random
effects on yields is examined.
Findings – The empirical estimates established significant influences from real rent growth and
interest rates on retail yields explaining 78 per cent of their variation when allowed for fixed effects.
Systematic time influences and market size are not significant. Retail yields are found fairly sensitive
to long-term interest (LTI) rates with 1 per cent change in LTI rates resulting in an over 80 basis points
shift in yields. In general, investors should be aware of interest rate shocks as these can move retail
yields in the region significantly. Based on the actual and simulated values for 2007 Shanghai and
Hong Kong are broadly fairly priced. In Tokyo, Sydney and Singapore retail yields are somewhat
lower than the simulated values, which are attributed to greater liquidity and transparency in these
markets than indicating over-pricing. In Delhi, the prime yield above the actual a sign of a possible
outward movement is found. Beijing appears under-priced. Finally, in Mumbai, which has the highest
yield in the sample, the simulated yield is below actual as per 2007. An adjustment may not be
expected as this difference is attributed to the pricing of supply risks in this market.
Originality/value – This study addresses the dearth of research work on retail yields in the
Asia-Pacific region. Through the panel methodology proposed market participants can obtain
fundamentals-based forecasts for prime retail yields in the sample of the eight cities, understand the
exposure to interest rate movements and make calls as to whether markets are mispriced. The study
shows that pooling data and panel techniques represent a good option to study market dynamics in
situations of small datasets.
Keywords Retailing, Yield,Real estate, Capital markets,Forecasting, Modelling, Pacific region
Paper type Research paper
1. Introduction
A key strategy in property investment is identifying and pricing the effec t of time and
location components on property yields. As investors broaden their search
geographically for investible product, their risk assessments are better informed by
a deeper understanding of the component influences on yields in different contexts.
Diverse regional economic conditions, demographic trends and real estate market trails
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
JPIF
27,3
224
Received August 2008
Accepted January 2009
Journal of Property Investment &
Finance
Vol. 27 No. 3, 2009
pp. 224-237
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780910951948
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