How long is UK property cycle?

Abstract

PurposeThe purpose of this paper is to assess the duration of the UK commercial property cycles, their volatility and persistence to gauge future market direction.Design/methodology/approachThe study employs a novel approach to dissect cycles in a form of a three-step algorithm. First, the Hodrick-Prescott de-trends the selected variables. Second, volatility (measured by the variance) screens periods of atypical fluctuations in the series. Finally, the series is regressed against its past values to assess the level of persistence. The sequential steps screen the length of the cycles in UK commercial property market to facilitate interpretation.FindingsThe estimates suggest that UK commercial property market follows an eight-year cycle. Combined modelling results indicate that the current market trend is likely to change over the coming year. The modelling suggests increasing probability of a market correction in late 2016/early 2017.Practical implicationsThis updated appreciation of the UK commercial property cycle duration allows for better market timing and investment decision making.Originality/valueThe paper adds additional evidence on the contested issue of UK commercial property cycle duration.