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Depreciation And Its Impact On The Total Return Of Uk Commercial Real Estate, 1994-2003

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  • Neil Crosby
  • Steven Devaney

Abstract

Depreciation is a key element of understanding the returns from and price of commercial real estate. Understanding its impact is important for asset allocation models and asset management decisions. It is a key input into well-constructed pricing models and its impact on indices of commercial real estate prices needs to be recognised. There have been a number of previous studies of the impact of depreciation on real estate, particularly in the UK. Law (2004) analysed all of these studies and found that the seemingly consistent results were an illusion as they all used a variety of measurement methods and data. In addition, none of these studies examined impact on total returns; they examined either rental value depreciation alone or rental and capital value depreciation. This study seeks to rectify this omission, adopting the best practice measurement framework set out by Law (2004). Using individual property data from the UK Investment Property Databank for the 10-year period between 1994 and 2003, rental and capital depreciation, capital expenditure rates, and total return series for the data sample and for a benchmark are calculated for 10 market segments. The results are complicated by the period of analysis which started in the aftermath of the major UK real estate recession of the early 1990s, but they give important insights into the impact of depreciation in different segments of the UK real estate investment market.

Suggested Citation

  • Neil Crosby & Steven Devaney, 2006. "Depreciation And Its Impact On The Total Return Of Uk Commercial Real Estate, 1994-2003," ERES eres2006_162, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2006_162
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    Cited by:

    1. Kevin Muldoon-Smith & Paul Greenhalgh, 2017. "Situations Vacant: A Conceptual Framework for Commercial Real Estate Vacancy," ERES eres2017_341, European Real Estate Society (ERES).

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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