Forthcoming JRER Paper
Do Foreign Buyers Compress Office Real Estate Cap Rates?
Abstract:We investigate the relationship between the activity of foreign investors and capitalization rates in major European office markets. In the process, the paper provides a comprehensive analysis of the determinants of European office market capitalization rates. Using DTZ's Investment Transaction Database and data on a range of local sector-specific and macroeconomic variables across 28 key European cities over 1999-2013, we test several empirical hypotheses including potential endogenous determination of office capitalization rates and the level of foreign investment. A two-stage modelling exercise reveals that there is significant negative effect of foreign investment on office market cap rates. The results are robust across several model specifications and samples.