The effect of sentiment on commercial real estate returns: investor and occupier perspectives

What is it about?

Not all sentiment effects are created equal. The study aims to disentangle investor sentiment from occupier sentiment in the commercial real estate market. By applying a unique survey-based sentiment index by the Royal Institute of Chartered Surveyors (RICS), this study examines long-run sentiment impacts by using Pesaran et al.’s (2001) bounds tests methodology. The findings suggest that investor and occupier sentiment effects are varied after controlling for market fundamentals and also effects are sector-specific. This study also demonstrates a notable improvement in the predictability of returns by including different sentiment measures in forecasting models.

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