Securitization and the Supply Cycle: Evidence from
the REIT Market

Abstract

We analyze securitized equity interests in commercial property (the so-called listed REIT market), with a particular focus on the U.S. experience. We begin by observing that there is a strong negative relationship between new commercial property construction activity and the growth of the U.S. REIT market. Based on this and other relevant factors, we conjecture that an important reason for the muted commercial property supply response during the early and mid-2000s was the “civilizing influence” of the REIT sector. A formal test of the conjecture suggests that the REIT market indeed moderated supply outcomes in the U.S. Relationships between the REIT market and new construction activity are generally weaker in other analyzed countries, where we attribute these findings to structural differences. We conclude that attention to structural detail is essential in order to maximize the benefits associated with creating a transparent and liquid market for securitized investment interests.