In this paper Dorinth van Dijk and Marc Francke examine co-movements in private commercial real estate index returns and market liquidity in the US (apartment, office, retail) and for eighteen global cities, using data from Real Capital Analytics over the period 2005–2018.
They measure of market liquidity is based on the difference between supply and demand price indexes. Furthermore, they document for all analyzed markets much stronger commonalities in changes in market liquidity compared to commonalities in real price index returns. The authors provide empirical evidence that space markets are less integrated than capital markets by analyzing co-movements in net-operating-income and cap rate spreads (over similar maturity bond yields). The findings imply that fully diversified price return benefits may be difficult to obtain, because market liquidity may dry up in all markets simultaneously, which makes portfolio re-balancing more difficult and costly.