Abstract
Purpose – Computing the duration of real estate assets is a challenging task due to the particularities of the property market. This paper aims to develop an empirical model to compute the interest‐rate sensitivity of direct real estate assets in the Swiss multifamily housing market.Design/methodology/approach – An aggregated total return index is used to empirically estimate the interest‐rate sensitivity of the underlying assets in a dynamic DCF model. No instantaneous change is computed but a long‐run price adjustment.Findings – The long‐run sensitivity is computed to be roughly 4.5 per cent. The value is found to be statistically significant at the 1 per cent level. The model is estimated over two different time periods and the estimate remains significant over both periods with value changing marginally. Potential reliance of trends when forming expectations is found to be present.Research limitations/implications – One limitation is that the computed value is valid for a portfolio having a similar co...
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