Commercial Buildings Capital Consumption and the United States National Accounts
Note: We would like to thank Real Capital Analytics Inc., The National Council of Real Estate Invesetment Fiduciaries (NCREIF), and Green Street Advisors Inc. for providing the data for this study. We also acknowledge helpful feedback on an earlier draft of this Report from Ryan McCormick (RER), Erwin Diewert (UBC) and Glenn Mueller (UD), and Robert Kornfeld (BEA). We also thank the Real Estate Roundtable (RER) and NAREIT for sponsoring a portion of this research. Finally, we would like to thank three anonymous reviewers at the ROIW.
Abstract
Commercial buildings are a major asset class, over 30 percent of the value of the stock of all produced assets according to the BEA. Yet, US commercial buildings depreciation has not been comprehensively studied since the highly influential work of Hulten and Wykoff almost 40 years ago. This paper's major contributions include: (i) More flexible and precise estimation of the net depreciation value/age profile, allowing much finer characterization of the building life cycle; (ii) Explicit quantification of the land value component of commercial property value, enabling net depreciation to be quantified as a fraction of remaining structure value; (iii) Inclusion of capital improvement expenditures, allowing estimates of “gross depreciation” (total capital consumption); and (iv) Implications of the paper's findings to and for the national accounts.
