Changing Lease Structures in Real Estate Office Markets

Metro market real estate cycles for office, industrial, retail, apartment, and hotel properties may be specified as first order Markov chains, which allow analysts to use a well-developed application, ¡§staying time¡¨. Anticipations for time spent at each cycle point are consistent with the perception of analysts that these cycle changes speed up, slow down, and pause over time. We find that these five different property types in U.S. markets appear to have different first order Markov chain specifications, with different staying time characteristics. Each of the five property types have their longest mean staying time at the troughs of recessions. Moreover, industrial and office markets have much longer mean staying times in very poor trough conditions. Most of the shortest mean staying times are in hyper supply and recession phases, with the range across property types being narrow in these cycle points. Analysts and investors should be able to use this research to better estimate future occupancy and rent estimates in their discounted cash flow (DCF) models.

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Real estate risk, yield modelling and market sentiment: the impact on pricing in European office markets

Journal of European Real Estate Research ◽

10.1108/jerer-06-2020-0032 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Tony McGough ◽

Jim Berry

Keyword(s):

Real Estate ◽

International Capital ◽

Content Type ◽

International Capital Markets ◽

Real Estate Markets ◽

Market Sentiment ◽

Office Markets ◽

Risk Pricing ◽

Changes In Risk ◽

The Impact

PurposeThe financial and economic turmoil that resulted from the Global Financial Crisis (GFC), included a marked increase in the volatility in real estate markets. Property asset prices were impacted by the real economy and market sentiment, particularly concerning the determination of risk. In an economic downturn, the perception of investment risk becomes increasingly important relative to overall total returns, and thus impacts on yields and performance of assets. In a recovery phase, and particularly within an environment of historically low government bonds, risk and return compete for importance. The aim of this paper is to assess the interrelationships and impacts on pricing between real estate risk, yield modelling outcomes and market sentiment in selective European city office markets.Design/methodology/approachThis paper specifically considers the modelling of commercial property pricing in relation to the appetite for risk in the financial markets. The paper expands on previous work by determining a specific measure of risk pricing in relationship to changing financial market sentiment. The methodology underpinning the research specifically examines the scope for using national and international risk pricing within specific real estate markets in Europe.FindingsThis paper addresses whether there is a difference between the impact of risk on the pricing of real estate in international versus regional cities in Europe. The analysis, therefore, determines which city centre office markets in Europe have been most impacted by globalisation including the magnitude on real estate prices and market volatility. The outcome of the paper provides important insights into how changes in risk preferences in the international capital markets have driven and continues to drive yield movements under different market conditions.Research limitations/implicationsThe paper considers the driving forces which have led to the volatile movements of yields, emanating from the GFC.Practical implicationsThis paper considers the property market effects on pricing of commercial real estate and the drivers in selected European cities.Originality/valueThe outcome of the paper provides important insights into how changes in risk preferences in the international capital markets have driven and continue to drive the yield movements in different real estate markets in Europe.

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THE REAL ESTATE RISK IN CENTRAL AND EASTERN EUROPEAN OFFICE MARKETS: THINKING TOO BIG?

10.15396/eres2010_286 ◽

2010 ◽

Keyword(s):

Real Estate ◽

Eastern European ◽

The Real ◽

The Real Estate ◽

Office Markets

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Distance and diversification

Journal of European Real Estate Research ◽

10.1108/jerer-02-2016-0010 ◽

2016 ◽

Vol 9 (2) ◽

pp. 183-192

Author(s):

Stephen Lee

Keyword(s):

Real Estate ◽

Portfolio Management ◽

Spatial Diversity ◽

Geographical Distance ◽

Content Type ◽

Economic Distance ◽

Office Markets ◽

The Uk ◽

City Of London ◽

The City

Purpose The purpose of this paper is to examine whether geographical distance or economic distance offers greater diversification benefits in the UK office market. Design/methodology/approach The real estate investment data for this study come from the Investment Property Databank analysis “UK Quarterly Key Centres Q2 2015”. The author measures the geographical distance between the City of London and 27 local authorities (LAs) by road distance. The author used the market size and employment structure of the LAs relative to the City of London to calculate economic distance. Findings The results show that LAs that are classified on their economic distance show significant negative office rental growth correlations with the City of London. In contrast, geographical distance shows no relationship. Results are consistent for the overall sample period and for various periods. Practical implications Spatial diversity is a fundamental tenet of real estate portfolio management and the results here show that it is better to diversify by across office markets in the UK using the economic attributes of LAs rather than the physical distance between locations. Originality/value This is one of only two papers to explicitly examine whether economic distance or geographical distance leads to significantly lower rental growth coefficients between locations in office markets and the first in the UK.

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How does liquidity in the financial market affect the real estate market yields?

Journal of Property Investment and Finance ◽

10.1108/jpif-03-2018-0020 ◽

2019 ◽

Vol 37 (1) ◽

pp. 2-19 ◽

Cited By ~ 1

Author(s):

Kyung-Min Kim ◽

Geon Kim ◽

Sotiris Tsolacos

Keyword(s):

Real Estate ◽

Financial Markets ◽

Financial Market ◽

Commercial Real Estate ◽

Content Type ◽

Office Markets ◽

Office Market ◽

Excess Liquidity ◽

The Impact ◽

The Relationship

PurposeAfter the Global Financial Crisis in 2008, the impact of expanded liquidity in the financial market has drawn attention. The purpose of this paper is to examine the relationship between liquidity in financial markets and office markets across Asian countries. In particular, the research not only examines the effect of normal liquidity on real estate markets, but also the effects of excess liquidity are specifically highlighted.Design/methodology/approachThis paper uses panel estimation utilizing quarterly data from the first quarter of 2007 to the fourth quarter of 2015. Taking both time and location dimensions into account allows for a more precise estimate of the relationship between liquidity and office market’s yields.FindingsPer the empirical outcome, an increasing excess liquidity tends to decelerate the value of office yields in six major Asian office market centers due to the positive effect on commercial real estate value. This effect is also identified by comparing the difference between the level of fitted yields and actual yields.Practical implicationsThe results enhance the understanding of commercial real estate yield determinants. Furthermore, the results can be used to assess the impacts of liquidity on major office markets in Asia.Originality/valueThis paper attempts to uncover the impact of liquidity in financial markets on the office market yields. To better understand the relationship, the concept of excess liquidity is adopted and further exploration of each office market is conducted by comparing the fitted yields, which is computed considering the effects of excess liquidity on yield levels and actual yields.

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Capital flows and office markets in major global cities

Journal of Property Investment and Finance ◽

10.1108/jpif-02-2020-0023 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Olawumi Fadeyi ◽

Stanley McGreal ◽

Michael McCord ◽

Jim Berry

Keyword(s):

New York ◽

Real Estate ◽

Capital Flows ◽

International Capital Flows ◽

International Capital ◽

Content Type ◽

Cross Border ◽

Office Markets ◽

Office Market ◽

Short Run

PurposeOffice markets and particularly international financial centres over the past decade have experienced rapid financialisation, developments and indeed changes in the post-global financial crisis (GFC) landscape. Importantly, the volume and types of international capital flows have witnessed more foreign actors and vehicles entering into the investment landscape with the concentration of investment intensifying within key financial centres. This paper examines the interaction of international real estate capital flows in the London, New York and Tokyo office markets between 2007 and 2017.Design/methodology/approachUsing Real Capital Analytics (RCA) data comprising over 5,700 office property transactions equating to $563bn between 2007 and 2017, the direct global capital flows into the London, New York and Tokyo office markets are assessed using an autoregressive distributed lag (ARDL) approach. Further, Granger causality tests are examined to analyse the short-run interaction of international real estate capital flows into these three major office markets.FindingsBy assessing the relativity of internal to external investments in these three central business district (CBD) office markets, differences in market dynamics are highlighted. The London office market is shown to be highly dependent on international flows and the USA, the foremost source of cross-border investment on the global stage. The cointegration and causality analysis indicate that cross-border real estate investment flows in these markets (and financial centres) show both long- and short-run relationships and suggest that the London office market remains more distinct and the most reliant on international capital flows with a wider geographical spread of investment activities and investor types. In the case of New York and Tokyo, these markets appear to be driven by more domestic investment activity and capital seemingly due to subtle factors pertaining to investor home bias, risk aversion and diversification strategies between the markets in the aftermath of the GFC.Originality/valueGiven the importance of the CBD offices in London, New York and Tokyo as an asset class for institutional investors, this paper provides some insights as to their level of connection and the interaction of the international capital flows into these three major cities.

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