Real Estate Cycles in Germany-Causes, Empirical Analysis and Recommendations for the Management Decision Process

By Rottke, Nico; Wernecke, Martin et al. | Journal of Real Estate Literature, January 1, 2003 | Go to article overview

Real Estate Cycles in Germany-Causes, Empirical Analysis and Recommendations for the Management Decision Process


Rottke, Nico, Wernecke, Martin, Schwartz, Arthur L., Jr., Journal of Real Estate Literature


Abstract

Unlike in the United States or the United Kingdom, research on real estate cycles in Germany exists only to a limited extent. Therefore, this article has three objectives: (1) to briefly introduce the unfamiliar reader to the theory of real estate cycles; (2) to empirically analyze the observable and quantifiable variables of the German office market and to make an attempt to validate the cyclical behavior of the German real estate market; and (3) to present recommendations for the management decision process based on theoretical causes and empirical analysis.

Introduction

Real estate cycles have been the subject of much research over the last ten years throughout the world. Although some academics believe real estate cycles are irrelevant or non-existent, others believe that cycles are a key variable, impacting property performance and they have published numerous articles and papers on the subject. Various researchers approach real estate cycles from differing viewpoints and try to determine the best ways to describe and forecast them and how to integrate them into an overall context. These viewpoints can be classified as the macroeconomic, microeconomic, finance or management view.1

From the perspective of the macroeconomic view, real estate cycles are regarded as part of the business cycle and focus on overall construction activity and sector unemployment rates in order to find relationships between the cyclical behavior of real estate and other aggregate markets.

The microeconomic view, concentrating on individual decisions rather than the aggregate, differentiates four markets as parts of the real estate market: the space market, the investment market, the market for new construction and the land market (Ball, Lizieri and MacGregor, 1998). Studies often focus on elements such as rent levels, vacancy and absorption rates and the role of different forms of expectations formation.

The finance view on cycles is based on Modern Portfolio Theory (MPT) and draws its conclusions out of valuation frameworks such as the Capital Asset Pricing Model (CAPM), the Arbitrage Pricing Theory (APT) or Real Options Models. Central variables are interest rates, relative volatility, higher moments, serial correlations and risk premiums.

A fourth view that has hardly been studied is the management view. This view examines whether and how cycles can be integrated into the management aspects of real estate. Management aspects are part of the so-called "house of real estate economics," a framework for real estate economics as a scientific discipline that focuses on the interdisciplinary aspects of real estate.2

Within the category of management, a distinction can be made between phase-oriented, function-specific and strategy-related aspects. Whereas phase-oriented aspects stand for the temporal determinant in the life cycle of real estate (project development, construction and facilities management), the function-specific approach examines the real estate-related particularities of business administrative functions (real estate analysis, appraisal, marketing, finance and investment). Strategy-related aspects, on the other hand, are concerned with the portfolio management of investors and corporate and public real estate management (Schulte, 2001) (see Exhibit 1).

Literature Review

Research on real estate cycles in the United States began as early as the 1930s with the pioneering work of Kuznets (1930). The number of publications on real estate cycles rose rapidly beginning in the 1980s, but the coverage remained widespread and inconsistent. In the beginning of the 1990s, Pyhrr, Born and Webb (1990) made an effort to systematize the findings and to put them into an ex ante framework for investment strategies. This effort has continued up to today. Mueller, Pyhrr and Born (1999) noticed that a common terminology, methodology and agenda in cycle research are not in place yet.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Real Estate Cycles in Germany-Causes, Empirical Analysis and Recommendations for the Management Decision Process
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.