Commercial Real-Estate Inventory and Theory of Storage

Real estate, like commodities, belongs to the category of alternative investments. Even though the characteristics of real estate are fairly different from those of crude oil or copper, inventory plays a crucial role in both cases. Our goal in this study is to investigate whether the theory of storage, as developed by Kaldor (1939) and Working (1949), then thoroughly analyzed for various commodities, can be extended to real estate. We take advantage of recent Futures data on the main U.K. commercial property index as well as a proprietary inventory database in order to test in this setting, and for the first time to our knowledge, the validity of the theory of storage for this asset class. The empirical evidence, covering data of the period 2008–2010, suggests that its main results can interestingly be extended to commercial real estate.