Macroeconomic variables and real estate returns: an international comparison.
Subject:
Real property (Valuation)
Real property (Methods)
Real property (Economic aspects)
Real property (Models)
Real property (Statistics)
Commercial real estate (Valuation)
Commercial real estate (Economic aspects)
Economic indicators (Influence)
Economic indicators (Statistics)
Authors:
Hoskins, Nicholas
Higgins, David
Cardew, Richard
Pub Date:
03/22/2004
Publication:
Name: Appraisal Journal Publisher: The Appraisal Institute Audience: Trade Format: Magazine/Journal Subject: Business; Real estate industry Copyright: COPYRIGHT 2004 The Appraisal Institute ISSN: 0003-7087
Issue:
Date: Spring, 2004 Source Volume: 72 Source Issue: 2
Topic:
Event Code: 800 Capital funds & cash flow; 680 Labor Distribution by Employer
Geographic:
Geographic Scope: United States; Canada; Australia Geographic Code: 8AUST Australia; 1CANA Canada; 1USA United States

Accession Number:
117040789
Full Text:
abstract

The relationship between property returns and the macro economy is important to investors' strategies. Pattern analysis based on correlation models reveals the ongoing macroeconomic links with major international property markets.

In this study, gross domestic product, unemployment, and inflation were identified as leading macroeconomic determinants affecting Australian, Canadian, U.K., and U.S. commercial property performance during 1985-1999. These macroeconomic links with commercial property returns revealed that over time, the economic relationships with property returns varied, generally becoming weaker while the relationship lead time increased. This shift suggests that explanatory powers are not uniform across global markets.

**********

Understanding key real estate relationships has a strategic implication on real estate decision making and portfolio management. The changing real estate environment can be linked to the macro economy. (1) Knowing the relationship between main macroeconomic variables and real estate performance, and knowing whether these links are consistent or changing over time can provide a useful tool in the decision-making process.

Commercial real estate markets across sites have been examined and key economic indicators identified. With globalization and the trend towards companies attempting to generate exposure to international markets, (2) a need was recognized for this work to be extended to a global level to determine the existence of international patterns.

This article identifies relationship patterns between macroeconomic indicators and property performance by identifying patterns in the periods at which the relationship is the most significant. The research can assist in the design of property investment strategy, both locally and internationally.

This article presents a review of literature review, presents property and economic data used for the statistical analysis, discusses pattern analysis, and presents conclusions based on the data and analysis.

Literature Review

The concept of common macroeconomic determinants in global property markets has received limited attention, with research tending to focus on national property and macroeconomic relationships. (3) Most of the literature investigates the influence of individual economic indicators such as inflation, employment, and stocks. Other literature tends to explain the property market in the context of the general economy activity, using gross domestic product (GDP) as a measurement of economic growth. Leading research on property and the macro economy can be categorized into a number of areas: economy and GDP, (4) inflation, (5) employment, (6) interest rates, (7) stock market, (8) and property market lags to the economy. (9)

The past research regularly shows commercial property performance to be closely aligned to GDP, employment, inflation, and interest rates. It is also evident that due to property supply characteristics, the property cycle lags behind movements of macroeconomic variables. The stock market, however, reveals far less consistency with property returns, and almost no significant relationship to property performance has been shown to exist. What is unclear, however, is if there is an existence of such relationships performing consistently among different countries. It is this question of integration between international markets that this article will address.

Property and Economic Data

Identification of relationship patterns for property performance and key macroeconomic variables consists of three principal steps: the collection of property data, the selection of key macroeconomic determinants, and the analysis of the variation in total property returns with the selected macroeconomic variables.

The following indices were used to obtain the total composite property return indices for each of the four selected countries to represent commercial property performance: (10)

The indices obtained for the analysis represented semiannual data between December 1984 and December 1999. The total return indices are the sum of both capital gains and income, which is the standard approach for comparisons with other alternative asset classes. The composite property index is a value-weighted index of the office, retail, and industrial sectors.

Key leading-economic determinants were chosen to represent economic performance of the selected countries. The requirements for the data in the economic determinants were that the data cover the same time period as the property market data, recognize government standards, and be easily available. The selected economic indicators were GDP, unemployment rate, inflation, exchange rates with the U.S. dollar, interest rate, and stock market performance. For comparison purposes, all property and economic data was measured as a percentage variation.

Data analysis using correlation models was selected to establish a relationship between the sets of property and economic data. The property-return data was organized so that it lagged the economic determinants in six-month intervals for three years. The coefficient of correlation (r) was then calculated to quantify and measure the strength of relationships between key determinants and property returns identified in the literature. The t-test was used to determine the significance of each coefficient of the independent variable in predicting the dependent variable, using a confidence level of 95%. Correlation coefficients were calculated for the commercial property returns and economic indicators across all countries and sectors.

Figure 1 illustrates the timing and strength of relationships demonstrated by key indicators and the U.S. composite property returns, the United States being the largest global real estate market.

[FIGURE 1 OMITTED]

Figure 1 reveals that GDP and unemployment exhibit the most significant relationship with U.S. composite property returns. (11) The strength of the relationship between composite property and inflation illustrates still another significant relationship. (12) The stock market showed no significant correlation with commercial property returns. (13) Interest rates also revealed a relationship, although not significant for pattern identification purposes.

Pattern Analysis

In shaping commercial property performance, the relationship with the key macroeconomic variables will vary in both their magnitude and timing. Pattern analysis can identify the periods of most influence. "Periods of most influence" relates to the lead time at which coefficients of correlation are highest. The data was analyzed for each 10-year time series within the 15-year time period from 1985 to 1999. Hence a series of data was analyzed for the time series between 1985-1994, 1986-1995, 1987-1996, 1988-1997, 1989-1998, and 1990-1999. This allowed an examination of the co-movement over time of macroeconomic indicators to property performance in the selected countries. (See the Appendix for a full report of time series data.)

The relationship between separate macroeconomic variables and commercial property performance is shown in Figure 2, Figure 3, and Figure 4. In each figure, the table details the lead times at which property returns were most closely aligned with the economic variable, and the graph provides the coefficient of correlation for the most significant lead time period. Lead times in bold indicate that the relationship is significant at the 5% level, while lead times not in bold indicate an insignificant relationship. In some instances, two time lags are hyphenated. This indicates that both time lags had a very similar correlation with the macroeconomic variable. (14)

[FIGURES 2-4 OMITTED]

Figure 2 shows GDP has progressively demonstrated a weaker relationship with coefficient of correlation values, decreasing for all countries except Australia. In the United States and Canada, this reduction coincides with the periods of most influence, shortening from the medium to the long term. Conversely, GDP has had a strengthening relationship with Australian composite returns while also diminishing from the medium to the long term. In part, this reflects changes in the Australian economy over the complete time series, where GDP growth from the service industries has been more than double that of the resources sector (mining and agriculture).

In each time series in Figure 3, there is a significant negative relationship between unemployment for the U.S., Australian, and Canadian composite property returns. The U.S. data demonstrates a slight decrease in unemployment and composite property returns relationship, while there is no consistent pattern of this relationship strengthening or weakening in the Australian or Canadian property markets. Unemployment's relationship with composite property returns in the United Kingdom became weaker, and the last two time series show that the relationship has broken down. The U.K. data shows significant relationships that were counter-cyclical at short-term lags (0 months) and cyclical at long-term lags (36 months). The changes in the most significant lag time can vary the relationship between the economic variable and property returns, as is evident in the U.K. data periods of 85/94 and 86/95.

In addition, Figure 3 indicates that the timing of unemployment's relationship with composite property returns is almost identical to the timing of GDP's relationship. The United States, Australia, and Canada are experiencing the relationship with unemployment at progressively longer time lags. The United Kingdom again shows consistency in the timing of its relationship, but with unemployment it maintains both a short-term relationship at a zero-month time lag and a long-term relationship at a 36-month lag.

Figure 4 shows the relationship of inflation with composite property returns. It is most significant in the United States, where the relationship appears in every time series. The Australian and Canadian markets show a marked change in relationship, which significantly appears to be now lagged at 30 or 36 months. The United Kingdom demonstrates that any significant relationship that existed in earlier time series has fallen below significant levels and therefore can be assumed to have broken down.

The examination of composite property returns shows consistency in pattern across the four property markets that have cross linkages and commonalities in nature, indicating a degree of international consistency. The key indicators have exhibited increasing time lags in their relationships with composite property returns in three of the four countries studied, the United Kingdom being the exception. Also, with the exception of Australian property with GDP and U.S. property with inflation, relationships are becoming weaker across the time series.

Figure 5 shows a comparison, across all countries, between changes in the lead times of periods of most influence and changes in the strength of the relationship. While this does not show if the change in the coefficient of correlation is a significant change, it can identify the presence of patterns for each country. If there are clear patterns, then there is some basis for assuming that these patterns are real rather than statistical artifacts.

In general, the relationships are becoming weaker across the time series, although there are some exceptions to this trend. In the United States and Canada lead times moved from the short-medium term to the medium-long term with relation to both GDP and unemployment. The United Kingdom was different in that the lead times were far more consistent over the time series. This can be attributed to several factors. For example, the U.K. property market is characterized by extensive planning controls and longer lease periods, making the market both less responsive to external influences and less flexible than the Australian, Canadian, and U.S. property markets.

Conclusion

Over the 1985-1999 period, investment performance of commercial property was aligned with leading macroeconomic determinants in Australia, Canada, the United Kingdom, and the United States. While there may not have been similar coefficients in each time series and across the countries, there were similarities in the trends that were displayed by the timing and strength of relationships with gross domestic product, unemployment, and inflation.

The data reveals that economic relationships with property returns are generally taking longer to exhibit a weaker relationship. Specifically Australian, U.S., and Canadian property returns related to both GDP and unemployment experienced lead times that moved from the short--medium term to the medium--long term. The United Kingdom was different in that the lead times were more consistent and remained stable over the examined time series.

The recent shift in the economic relationships with property returns provides evidence that explanatory powers are not uniform across the global property markets. The divergence provides investors with new challenges to understand the pace, magnitude, and direction of macroeconomic influences on the performance of property markets.

Additional Reading

Brown, P. M. "International Similarities of the Real Estate Cycle." Building Owners and Managers (1985): 1-12.

Henderson, B. G. "Cyclical Capital Flows and the Cyclical Losses in Commercial Real Estate." Real Estate Review (Summer 1995): 34-42.

Lewis, M. K. "Banks and Property: Preparing for the Next Cycle." The Valuer and Land Economist 35, no. 1 (February 1998): 48-56.

(1.) Glenn R. Mueller, "Real Estate Rental Growth Rates at Different Points in the Physical Market Cycle," Journal of Real Estate Research 18, no. 1 (1999): 131-150.

(2.) Stephen A. Phyrr, Stephen E. Roulac, and Waldo L. Born, "Real Estate Cycles and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy," Journal of Real Estate Research 18, no. 1 (1999): 7-68.

(3.) The Royal Institution of Chartered Surveyors, Eight Questions About Property History (London: RICS Books, 1998); Stephen E. Roulac, "Real Estate Market Cycles, Transformation Forces and Structural Change," The Journal of Real Estate Portfolio Management 2, no. 1 (1996): 4-1 3; and Graeme Newell and David Higgins, "Impact of Leading Economic Indicators on Commercial Property Performance," The Valuer and Land Economist 34, no. 2 (1996): 138-144.

(4.) Roulac; D. E. Gilbert, "Economics: A Most Useful Tool for the Valuer," The Valuer and Land Economist (November 1993): 580-584; RICS; and Nanda Nanthakumaran, B. O'Roarty, and Allison Orr, "The Impact of Economic Indicators on Industrial Property Market Performance" (paper presented at the Second Pacific Rim Real Estate Society Conference, Sanctuary Cove, Queensland, Australia, January 22-24, 1996).

(5.) Graeme Newell, "Inflation-Hedging Attributes of Australian Commercial Property," Australian Land Economics Review 1, no. 1 (1995): 31-37; David J. Hartzell and R. Brian Webb, "Commercial Real Estate and Inflation During Periods of High and Low Vacancy Rates" (working paper, Real Estate Research Institute, Boston, 1993); Jeffrey D. Fisher and R. Brian Webb, "Current Issues in the Analysis of Commercial Real Estate," Journal of the American Real Estate and Urban Economics Association 20, no. 1 (1992): 211-227; Jeffrey D. Fisher and C. F. Sirmans, "The Role of Commercial Real Estate in a Multi-Asset Portfolio," University of Connecticut, Centre for Real Estate and Urban Economic Studies, April 1993; Jones Lang Wooten, Property Performance in a Low Inflationary Environment (Sydney: JLW Property Research, 1991); and L. D. J. Martin, Views on How Low inflation Affects the Property Market--Will Property Values Rise or Fall in a Low inflation Environment? (Sydney: Richard Ellis Pty Ltd, 1992).

(6.) Patrick I. Corcoran, "Explaining the Commercial Real Estate Market," Journal of Portfolio Management 13, no. 3 (1987): 15-21; and Patric H. Hendershott, C. M. Lizieri, and G. A. Matysiak, "The Workings of the London Office Market," Real Estate Economics 27, no. 2 (1999): 365-387.

(9.) Hendershott, Lizieri, and Matysiak; J. L. Kling and T. E. McCue, "Office Building Investment and the Macro Economy: Empirical Evidence, 1973-1985," Journal of the American Real Estate and Urban Economics Association 15, no. 3 (1987): 234-254; B. G. Stevenson, "Cyclical Capital Flows and the Cycles of Losses in Commercial Real Estate," Real Estate Review 25, no. 2 (1995): 34-42; and Corcoran.

(8.) David Isaac, Property Investment (London: Macmillan Press, 1998); Patrick J. Wilson and John Okunev, "Long-Term Dependencies and Long Run Non-Periodic Co-Cycles: Real Estate and Stock Markets," Journal of Real Estate Research 18, no. 2 (1999): 257-275; Fisher and Sirmans; RICS; and David C. Ling and Andy Naranjo, "The integration of Commercial Real Estate Markets and Stock Markets," Real Estate Economics 27, no. 3 (1999): 483-515.

(9.) Gilbert; Newell and Higgins; David Higgins and G. DeValence, "Australian Business Cycles and Commercial Property Markets: Some Empirical Evidence Over Four Decades," Pacific Rim Property Research Journal 6, no. 1 (2000): 57-66; Phyrr, Roulac, and Born; Stephen A. Phyrr et al, Real Estate investment, 2d ed. (Brisbane: Wiley, 1989); and Richard Barras, "Property and the Economic Cycle: Building Cycles Revisited," Journal of Property Research 11 (1994): 183-197.

(10.) Information regarding these indices can be found on the index providers' Web sites: Property Council of Australia, www.propertyoz.com.au; Investment Property Databank (IPD), www.ipdindex.co.uk; National Council of Real Estate Investment Fiduciaries (NCREIF), www.ncreif.com; and Frank Russell Canada Limited, www.russell.com/ca.

(11.) This association is supported in work by Corcoran; Gilbert; Hendershott, Lizieri, and Matysiak; and Roulac.

(12.) This significant relationship was put forward by Jones Lang Wooten.

(13.) For similar findings, see the work of Fisher and Sirmans; Isaac; and Wilson and Okunev.

(14.) Figure 2, Figure 3, and Figure 4 identify two key points. The number beside the country shows the lead time where the coefficient of correlation was greatest. The coefficient value at this time is then shown in the line graph. The figures therefore detail both the timing and strength of the relationship and how this has changed across the time series. For further details on these correlation values, readers can contact the authors at hoskinsn@anz.com.

Nicholas Hoskins works for the ANZ Bank in their Global Institutional and Investment Banking Division. He has a bachelor's degree in building construction management from the University of New South Wales, Sydney. In 2001, he was awarded the Australian Institute of Building Chapter Medal. Contact: hoskinsn@anz.com

David Higgins, PhD, is a property lecturer at the University of Technology, Sydney. He has over 18 years of commercial property experience as the director of Higgins Research. His current research focuses is on property decision theory, including property market performance analysis and property forecasting. Contact: david.higgins@uts.edu.au

Richard Cardew was an associate professor in the faculty of the built environment program at the University of New South Wales, and be was head of the real estate program from 2000 to 2003. He currently works as a consultant on academic planning and policy. Contact: r.cardew@unsw.edu.au
Australia         Property Council of Australia
                    Investment Performance Index
United Kingdom    IPD UK Monthly Index
United States     NCREIF Index
Canada            Russell Canadian Index


Appendix

Time Series Data by Country

Australia--Whole Time Series

                                       Period of Lead (Months)

Economic Indicator              0        6       12       18       24

GDP (AUS)                      0.40     0.57     0.65     0.56     0.20
Unemployment                  -0.64    -0.71    -0.67    -0.35    -0.15
Inflation                      0.51     0.31     0.17     0.10     0.06

Australia--1985 to 1994 Time Series

GDP (AUS)                      0.45     0.57     0.69     0.58     0.16
Unemployment                  -0.65    -0.77    -0.73    -0.36    -0.13
Inflation                      0.71     0.48     0.34     0.26     0.19

Australia--1986 to 1995 Time Series

GDP (AUS)                      0.56     0.71     0.62     0.60     0.39
Unemployment                  -0.68    -0.89    -0.83    -0.54    -0.23
Inflation                      0.63     0.34     0.12    -0.19    -0.33

Australia--1987 to 1996 Time Series

GDP (AUS)                      0.65     0.64     0.72     0.63     0.28
Unemployment                  -0.57    -0.87    -0.85    -0.56    -0.20
Inflation                      0.37     0.08    -0.12    -0.45    -0.65

Australia--1988 to 1997 Time Series

GDP (AUS)                      0.71     0.75     0.70     0.71     0.40
Unemployment                  -0.79    -0.84    -0.86    -0.63    -0.30
Inflation                      0.25    -0.11    -0.22    -0.54    -0.64

Australia--1989 to 1998 Time Series

GDP (AUS)                      0.58     0.63     0.76     0.83     0.68
Unemployment                  -0.59    -0.70    -0.78    -0.80    -0.75
Inflation                      0.24     0.01     0.24    -0.29    -0.46

Australia--1990 to 1999 Time Series

GDP (AUS)                      0.46     0.13     0.32     0.66     0.82
Unemployment                  -0.29    -0.33    -0.40    -0.53    -0.58
Inflation                     -0.11    -0.12     0.23    -0.15     0.08

Canada--Whole Time Series

GDP (CAN)                      0.26     0.47     0.55     0.59     0.41
Unemployment                  -0.26    -0.40    -0.46    -0.51    -0.49
Inflation                      0.10     0.07     0.02    -0.20    -0.13

Canada--1985 to 1994 Time Series

GDP (CAN)                      0.06     0.39     0.60     0.76     0.50
Unemployment                  -0.09    -0.33    -0.50    -0.63    -0.62
Inflation                      0.41     0.33     0.36    -0.05     0.25

Canada--1986 to 1995 Time Series

GDP (CAN)                      0.16     0.29     0.50     0.76     0.84
Unemployment                  -0.27    -0.32    -0.32    -0.60    -0.73
Inflation                      0.26     0.24     0.23    -0.33    -0.07

Canada--1987 to 1996 Time Series

GDP (CAN)                     -0.05     0.09     0.36     0.56     0.70
Unemployment                   0.02    -0.21    -0.30    -0.53    -0.57
Inflation                      0.29    -0.10     0.18    -0.39    -0.01

Canada--1988 to 1997 Time Series

GDP (CAN)                      0.26     0.33     0.36     0.37     0.41
Unemployment                  -0.25    -0.32    -0.23    -0.34    -0.43
Inflation                     -0.06    -0.12    -0.00    -0.40    -0.22

Canada--1989 to 1998 Time Series

GDP (CAN)                      0.36     0.40     0.43     0.45     0.43
Unemployment                  -0.32    -0.50    -0.29    -0.41    -0.41
Inflation                     -0.26     0.01    -0.06    -0.34    -0.24

Canada--1990 to 1999 Time Series

GDP (CAN)                      0.22     0.22     0.38     0.26     0.25
Unemployment                  -0.19    -0.29    -0.30    -0.34    -0.14
Inflation                     -0.14     0.03    -0.08     0.06    -0.09

U.K.--Whole Time Series

GDP (GBP)                      0.70     0.63     0.45     0.26     0.13
Unemployment                  -0.68    -0.49    -0.22    -0.01     0.16
Inflation                     -0.01    -0.32    -0.46    -0.43    -0.37

U.K.--1985 to 1994 Time Series

GDP (GBP)                      0.71     0.70     0.57     0.35     0.16
Unemployment                  -0.76    -0.53    -0.23     0.01     0.24
Inflation                     -0.01    -0.35    -0.51    -0.53    -0.48

U.K.--1986 to 1995 Time Series

GDP (GBP)                      0.60     0.51     0.32     0.16    -0.16
Unemployment                  -0.63    -0.35    -0.02     0.17     0.33
Inflation                     -0.14    -0.37    -0.46    -0.49    -0.36

U.K.--1987 to 1996 Time Series

GDP (GBP)                      0.73     0.46     0.20    -0.06    -0.27
Unemployment                  -0.57    -0.24     0.13     0.31     0.46
Inflation                     -0.41    -0.62    -0.62    -0.49    -0.38

U.K.--1988 to 1997 Time Series

GDP (GBP)                      0.75     0.60     0.22     0.09    -0.02
Unemployment                  -0.61    -0.53    -0.23     0.00     0.20
Inflation                     -0.16    -0.44    -0.59    -0.40    -0.36

U.K.--1989 to 1998 Time Series

GDP (GBP)                      0.66     0.46     0.19     0.10    -0.05
Unemployment                  -0.46    -0.45    -0.25    -0.17    -0.02
Inflation                      0.09    -0.27    -0.44    -0.32    -0.23

U.K.--1990 to 1999 Time Series

GDP (GBP)                      0.62     0.02    -0.28    -0.53    -0.43
Unemployment                  -0.06    -0.15     0.25     0.40     0.08
Inflation                      0.01    -0.15    -0.43     0.03     0.22

U.S.--Whole Time Series

GDP (USD)                      0.46     0.55     0.65     0.50     0.54
Unemployment                  -0.42    -0.55    -0.67    -0.46    -0.48
Inflation                     -0.35    -0.39    -0.59    -0.60    -0.58

U.S.--1985 to 1994 Time Series

GDP (USD)                      0.34     0.48     0.76     0.42     0.61
Unemployment                  -0.42    -0.58    -0.88    -0.50    -0.50
Inflation                      0.17     0.13     0.13    -0.34    -0.48

U.S.--1986 to 1995 Time Series

GDP (USD)                      0.20     0.35     0.76     0.48     0.53
Unemployment                  -0.34    -0.54    -0.88    -0.52    -0.56
Inflation                     -0.04     0.01    -0.44    -0.51    -0.50

U. S.--1987 to 1996 Time Series

GDP (USD)                      0.32     0.41     0.60     0.34     0.56
Unemployment                  -0.35    -0.54    -0.75    -0.49    -0.61
Inflation                     -0.14    -0.20    -0.58    -0.56    -0.65

U.S.--1988 to 1997 Time Series

GDP (USD)                      0.33     0.52     0.60     0.49     0.50
Unemployment                  -0.40    -0.58    -0.65    -0.51    -0.53
Inflation                     -0.44    -0.29    -0.59    -0.54    -0.69

U.S.--1989 to 1998 Time Series

GDP (USD)                      0.22     0.35     0.44     0.67     0.66
Unemployment                  -0.10    -0.53    -0.55    -0.67    -0.61
Inflation                     -0.55    -0.57    -0.46    -0.37    -0.68

U.S.--1990 to 1999 Time Series

GDP (USD)                      0.43     0.33     0.09     0.39     0.53
Unemployment                   0.21     0.03    -0.19    -0.43    -0.49
Inflation                     -0.43    -0.62    -0.41    -0.20    -0.11

                              Period of Lead (Months)

Economic Indicator                 30       36

GDP (AUS)                          0.00     0.05
Unemployment                      -0.12     0.04
Inflation                         -0.05    -0.11

Australia--1985 to 1994 Time Series

GDP (AUS)                         -0.06     0.00
Unemployment                      -0.09     0.10
Inflation                          0.06     0.00

Australia--1986 to 1995 Time Series

GDP (AUS)                          0.16    -0.40
Unemployment                       0.23     0.44
Inflation                         -0.28    -0.31

Australia--1987 to 1996 Time Series

GDP (AUS)                          0.09    -0.36
Unemployment                       0.18     0.47
Inflation                         -0.78    -0.79

Australia--1988 to 1997 Time Series

GDP (AUS)                          0.06    -0.23
Unemployment                       0.04     0.32
Inflation                         -0.78    -0.87

Australia--1989 to 1998 Time Series

GDP (AUS)                          0.47    -0.17
Unemployment                      -0.35     0.08
Inflation                         -0.68    -0.74

Australia--1990 to 1999 Time Series

GDP (AUS)                          0.58    -0.06
Unemployment                      -0.51    -0.39
Inflation                         -0.37    -0.58

Canada--Whole Time Series

GDP (CAN)                          0.32     0.37
Unemployment                      -0.38    -0.49
Inflation                         -0.36    -0.26

Canada--1985 to 1994 Time Series

GDP (CAN)                          0.44     0.38
Unemployment                      -0.46    -0.52
Inflation                         -0.35     0.05

Canada--1986 to 1995 Time Series

GDP (CAN)                          0.43    -0.04
Unemployment                      -0.40    -0.17
Inflation                         -0.36     0.04

Canada--1987 to 1996 Time Series

GDP (CAN)                          0.59     0.47
Unemployment                      -0.42    -0.42
Inflation                         -0.76    -0.09

Canada--1988 to 1997 Time Series

GDP (CAN)                          0.45     0.59
Unemployment                      -0.38    -0.58
Inflation                         -0.53    -0.32

Canada--1989 to 1998 Time Series

GDP (CAN)                          0.44     0.58
Unemployment                      -0.36    -0.61
Inflation                         -0.53    -0.37

Canada--1990 to 1999 Time Series

GDP (CAN)                          0.46     0.64
Unemployment                      -0.46    -0.71
Inflation                         -0.41    -0.36

U.K.--Whole Time Series

GDP (GBP)                         -0.14    -0.15
Unemployment                       0.39     0.43
Inflation                         -0.36    -0.04

U.K.--1985 to 1994 Time Series

GDP (GBP)                         -0.18    -0.26
Unemployment                       0.59     0.68
Inflation                         -0.53    -0.04

U.K.--1986 to 1995 Time Series

GDP (GBP)                         -0.41    -0.46
Unemployment                       0.66     0.74
Inflation                         -0.26     0.01

U.K.--1987 to 1996 Time Series

GDP (GBP)                         -0.54    -0.71
Unemployment                       0.76     0.78
Inflation                         -0.24     0.03

U.K.--1988 to 1997 Time Series

GDP (GBP)                         -0.29    -0.38
Unemployment                       0.54     0.61
Inflation                         -0.32    -0.16

U.K.--1989 to 1998 Time Series

GDP (GBP)                         -0.17    -0.25
Unemployment                       0.39     0.48
Inflation                         -0.24    -0.08

U.K.--1990 to 1999 Time Series

GDP (GBP)                         -0.14    -0.33
Unemployment                       0.20     0.24
Inflation                          0.35     0.10

U.S.--Whole Time Series

GDP (USD)                          0.24     0.07
Unemployment                      -0.26    -0.17
Inflation                         -0.65    -0.54

U.S.--1985 to 1994 Time Series

GDP (USD)                          0.12    -0.13
Unemployment                      -0.05     0.09
Inflation                         -0.61    -0.38

U.S.--1986 to 1995 Time Series

GDP (USD)                          0.06    -0.10
Unemployment                      -0.15     0.15
Inflation                         -0.65    -0.44

U. S.--1987 to 1996 Time Series

GDP (USD)                          0.18    -0.10
Unemployment                      -0.21     0.01
Inflation                         -0.77    -0.51

U.S.--1988 to 1997 Time Series

GDP (USD)                          0.12     0.12
Unemployment                      -0.27    -0.25
Inflation                         -0.75    -0.63

U.S.--1989 to 1998 Time Series

GDP (USD)                          0.43     0.24
Unemployment                      -0.40    -0.35
Inflation                         -0.67    -0.67

U.S.--1990 to 1999 Time Series

GDP (USD)                          0.62     0.37
Unemployment                      -0.65    -0.47
Inflation                         -0.54    -0.74

Figure 2 Patten Analysis--Composite Property Returns with GDP

[GRAPHIC OMITTED]

Time Series       85/94    86/95     87/96      88/97    89/98

Australia           12#      6#          12#      6#     12-18#
Canada             183#     24#          24#     36#        36#
United Kingdom     0-6#      0#     0, (36)#      0#         0#
United States       12#     12#          12#     12#        18#

Time Series         90/99

Australia              24#
Canada                 36#
United Kingdom    0, (36)#
United States          30#

Bold numbers = significant coefficient of correlation at 5% level;
numbers in parenthesis indicate a negative relationship.

Significant coefficient of correlation at 5% level indicated with #.

Figure 3 Patten Analysis--Composite Property Returns with Unemployment

[GRAPHIC OMITTED]

Time Series          85/94          86/95       87/96       88/97

Australia               (6-12)#    (6-12)#       (6-12)#    (6-12)#
Canada           (18-24), (36)#      (24)#      (18-24)#      (36)#
United Kingdom       (0), (36)#   (0), 36#   (0), 30-36#   (0), 36#
United States             (12)#      (12)#         (12)#      (12)#

Time Series       89/98      90/99

Australia        (12-18)#   (18-24)#
Canada              (36)#      (36)#
United Kingdom       36         18
United States       (18)#      (30)#

Bold numbers = significant coefficient of correlation at 5% level;
numbers in parenthesis indicate a negative relationship.

Significant coefficient of correlation at 5% level indicated with #.

Figure 4 Patten Analysis--Composite Property Returns with Inflation

[GRAPHIC OMITTED]

Time Series          85/94        86/95       87/96       88/97

Australia                  0#          0     (30-36)#    (30-36)#
Canada                     0     0, (30)        (30)#       (30)#
United Kingdom    (18), (30)#       (18)      (6-12)#       (12)#
United States           (30)#       (30)#       (30)#       (30)#

Time Series        89/98      90/99

Australia         (20-36)#    (36)#
Canada               (30)#    (30)
United Kingdom       (12)     (12)
United States     (24-36)#    (36)#

Bold numbers = significant coefficient of correlation at 5% level;
numbers in parenthesis indicate a negative relationship.

Significant coefficient of correlation at 5% level indicated with #.

Figure 5 Trends in Macroeconomic Variables and Property Returns
(1985-1999)

                    Lead Time of        Change in
                  Most Significant    Coeeficient of
                    Relationship       Correlation

Australia
  GDP                   (A)                (A)
  Unemployment          (A)                (C)
  Inflation             (A)                (B)
Canada
  GDP                   (A)                (B)
  Unemployment          (A)                (C)
  Inflation             (C)                (B)
United Kingdom
  GDP                   (C)                (B)
  Unemployment          (C)                (B)
  Inflation             (C)                (B)
United States
  GDP                   (A)                (C)
  Unemployment          (A)                (B)
  Inflation             (A)                (C)

Key: (A) Increase    (B) Decrease    (C) Remained Stable
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