[Table 7 here]
If movements in the demand indices led TBI returns and did not lag REIT returns, the
lead-lag relationship between REIT and TBI returns would be due to the slow reaction of the
seller reservation prices in the direct market rather than a sluggish response of direct real
estate demand to shocks. However, the dynamics of the demand indices appear to be highly
similar to the TBI dynamics. REIT returns lead changes in the demand indices in all the
sectors and only in the office market there is some evidence of demand leading TBI returns.
Furthermore, the impulse responses do not generally show evidence of a more rapid reaction
of demand than of prices in the direct market. An exception is the retail market, where the
GIRFs present some support for a more rapid response of demand to interest rate, inflation
and sentiment shocks. Figures 6-7 shows the reaction patterns of TBI returns and of demand
index movements to shocks in the fundamentals in the apartment and retail sectors. In the
office and industrial sectors, the differences between the estimated GIRFs for the demand
changes and returns are only trivial.
[Fig. 6-7 here]
The finding according to which the demand and return dynamics are alike and do not
generally exhibit lead-lag relations is somewhat surprising and does not support the
hypothesis that it is due to the slow response of sellers that the TBI returns lag REIT returns.
Instead, also the demand for direct real estate (and the constant-liquidity value of real estate)
adjusts sluggishly. Nevertheless, the estimated impulse responses are generally in line with
the claim that demand is more volatile than prices in the direct real estate market and that
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