The Convergence of Real Estate Cycles

The diversification of risks is an essential aspect for property investors. One possibility to reduce portfolio risks is the acquisition of international property. However, globalization has induced a convergence of business cycles so that the differences in real estate cycles are questionable. Moreover, the monetary integration in Europe has brought in line nominal short-term interest levels for European investors. In this study the co-movement of office and housing cycles is tested for European markets by using a factor analysis. The results show that office cycles are highly synchronized. Housing markets are by contrast less integrated. Especially markets with a low homeownership rate, like the German, Dutch and Swiss market, stand out. The monetary integration has only a minor impact on cycles for offices and for housing.

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