A repeat sales index for office buildings in New York City, 1900-2000

Abstract

This paper comments on one of the real estate and financial world's most common adages: that real estate is a safe long-term investment that will perform equal to or exceed other common investments, particularly over long stretches of time. With data drawn from a wide range of primary and secondary sources, a repeat sales index of large (250,000+ square foot) commercial building sales in the Midtown and Downtown sub-markets of New York City is created to illustrate how these properties have performed as an inflation-adjusted investment from 1900 through 2000. It differs from other papers that focused on hedonic modeling of building attributes and locational characteristics or that created appraisal-, lease- or property-share returns indices. Although our findings were not statistically significant, appreciation is found to be rather flat over time, appreciating on average between 1/4 to 2/3 percent per year and mirrors the findings of Eichholtz 1997 and Eichholtz & Geltner 2002. This suggests that while commercial office properties may provide investment opportunities when purchased and sold at the right points in the cycle, it tends to under-perform other investment options when carried over time.