RENTAL AND CAPITAL VALUE CYCLES A TREND AND ECONOMETRIC ANALYSIS

Abstract

The property market is dependent upon the state of the general economy. The principal rationale of this study is to investigate the cyclical fluctuations in the rental and the capital value markets of the office and retail sectors. These fluctuations are also considered in conjunction with changes in the macro-economic variables to determine the nature and extent of their interaction.

The general finding was that the peaks and troughs in the capital value market tend to precede that of the rental market. An analysis of their historical trend also revealed that the rental and capital values have exhibited a similar degree of volatility over the past fifteen years. The exception was in the retail sector during the last two years when rental values escalated remarkably in response to the prevailing optimism in the tourism industry.

It is therefore not surprising then that growth in the visitor arrivals figures was found to be a significant determinant in the performance of the retail sector. In the office sector, rental and capital values were found to be influenced by a similar set of macro-economic variables. The capital value market however exhibited a greater degree of sensitivity to changes in these variables than the rental value market.