The most reliable metrics for identifying real estate price bubbles vary between property type, new research suggests.

Academics from Bayes Business School (part of City St George's, University of London) found that the yield curve is a good predictor for 'price explosiveness' in the retail and industrial property sectors, with inflation also a good indicator for the former. However, rent growth is more effective in predicting a possible bust in the office space market—and also serves as a good indicator for dangerous price exuberance in the industrial property sector.

Meanwhile, inflation also seems to be a good predictor of possible price over-exuberance in the market for office premises, as well as in retail property.

A bubble hunt

Research led by Professor Giovanni Urga, Director of Bayes' Center for Econometric Analysis (CEA), and real estate expert Professor Sotiris Tsolacos, drew on the MSCI real assets database to systematically monitor signals and detect bubble price formation in the UK commercial property sector between December 1986 and April 2022.

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