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The role of macro-economic indicators in explaining direct commercial real estate returns: evidence from South Africa

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  • Omokolade Akinsomi
  • Nikiwe Mkhabela
  • Marimo Taderera

Abstract

This study investigates the role of macro-economic indicators in explaining direct real estate returns in South Africa (SA). Literature review is conducted to identify factors that drive direct commercial real returns and the identified drivers are tested in an emerging market. The study applies SA annual commercial real estate returns including total returns, rental growth and capital growth published by the Investment Property Databank (IPD) over the past 20 years, from 1995 to 2014, as an independent variable. The most dominant and significant factors that explain total returns across all property types and provinces in South Africa are GDP, unemployment rates and interest rates which are macro-economic indicators. Our study finds key differences between the determinants of total return and change in capital values which are different from the variables which determine rental growth – the results also highlight the heterogeneity and complexity of real estate returns. These results are important for asset managers as well as government regulatory agencies to make better informed decisions in relation to factors which affect direct real estate returns in an emerging economy.

Suggested Citation

  • Omokolade Akinsomi & Nikiwe Mkhabela & Marimo Taderera, 2018. "The role of macro-economic indicators in explaining direct commercial real estate returns: evidence from South Africa," Journal of Property Research, Taylor & Francis Journals, vol. 35(1), pages 28-52, January.
    • Handle: RePEc:taf:jpropr:v:35:y:2018:i:1:p:28-52
    DOI: 10.1080/09599916.2017.1402071
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    References listed on IDEAS

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    1. Bradford Case & William Goetzmann & K. Rouwenhorst, 1999. "Global Real Estate Markets: Cycles And Fundamentals," Yale School of Management Working Papers ysm20, Yale School of Management, revised 01 Jan 2001.
    2. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 1-43.
    3. Shimizu, Chihiro, 2014. "How Are Property Investment Returns Determined? : Estimating the Micro-Structure of Asset Prices, Property Income, and Discount Rates," HIT-REFINED Working Paper Series 12, Institute of Economic Research, Hitotsubashi University.
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    Cited by:

    1. Muktar Babatunde Wahab & Wasiu Ayobami Durosinmi & Matthew Mamman & Dodo Usman Zakari & Adetoye Sulaiman Adepoju, 2021. "Macroeconomic Dynamics in Real Estate Market amid Covid-19 Pandemic in Abuja, Nigeria," AfRES 2021-002, African Real Estate Society (AfRES).
    2. Taderera, Marimo & Akinsomi, Omokolade, 2020. "Is commercial real estate a good hedge against inflation? Evidence from South Africa," Research in International Business and Finance, Elsevier, vol. 51(C).
    3. Kwabena Mintah & Woon-Weng Wong & Peng Yew Wong, 2020. "Cross Border Real Estate Investments and Commercial Office Property Market Performance: Evidence from Australia," International Real Estate Review, Asian Real Estate Society, vol. 23(2), pages 837-860.
    4. Mustafa ŞİT, 2019. "The Determinants of Foreign Direct Investments in Real Estate: Turkey Case," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(3), pages 789-795, 03-2019.
    5. Benjamin Kwakye & Chan Tze Haw, 2020. "Interplay of the Macroeconomy and Real Estate: Systematic Review of Literature," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 262-271.
    6. Shizhen Wang & David Hartzell, 2021. "Real Estate Return in Hong Kong and its Determinants: A Dynamic Gordon Growth Model Analysis," International Real Estate Review, Global Social Science Institute, vol. 24(1), pages 113-138.
    7. Cohen Viktorija & Burinskas Arūnas, 2020. "The Evaluation of the Impact of Macroeconomic Indicators on the Performance of Listed Real Estate Companies and Reits," Ekonomika (Economics), Sciendo, vol. 99(1), pages 79-92, June.
    8. Daniel Lo & Yung Yau & Michael McCord & Martin Haran, 2022. "Dynamics between Direct Industrial Real Estate and the Macroeconomy: An Empirical Study of Hong Kong," Land, MDPI, vol. 11(10), pages 1-23, September.
    9. Kwabena Mintah & Woon-Weng Wong & Peng Yew Wong, 2020. "Cross Border Real Estate Investments and Commercial Office Property Market Performance: Evidence from Australia," International Real Estate Review, Global Social Science Institute, vol. 23(2), pages 211-234.
    10. Kola Ijasan & Peterson Owusu Junior & George Tweneboah & Tunbosun Oyedokun & Anokye M. Adam, 2021. "Analysing the relationship between global REITs and exchange rates: Fresh evidence from frequency-based quantile regressions," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(3), pages 58-91, September.
    11. Shaun de Jager & Chris Loewald & Konstantin Makrelov & Xolani Sibande, 2022. "Leaningagainstthewindwithfiscalandmonetarypolicy," Working Papers 11033, South African Reserve Bank.

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