Serial Persistence in Disaggregated Australian Real Estate Returns

Abstract

Executive Summary. Serial persistence of total annual returns for all properties in the Property Council of Australia database is shown to be statistically significant in all quartiles of disaggregated returns between 1985 and 1997. More precisely, performance in a particular quartile is generally followed by continued performance in the same quartile. However, when grouped by property type, persistence differences emerge. Office and Retail properties show statistically significant persistence in the extreme (combined first and fourth) quartiles and moderate (combined second and third) quartiles but Industrial properties show serial independence in both the extreme and moderate quartiles. When Office properties are grouped by CBD and non-CBD locations, serial persistence exists in all quartiles for CBD Office properties but not for non-CBD Office properties. The empirical evidence of serial persistence among real estate returns in the Property Council of Australia database challenges the conclusions of research based upon models that incorporate the assumption of serial independence.