Cycles in Office Returns: Stockholm As Case Study and International Comparisons

Long-run series on realised investor returns suggest that offices tend to show poor risk-adjusted returns relative to other property market sectors. The paper is an empirical test of the performance of the dominant office markets in four countries Ò UK, Ireland, Sweden and France Ò against alternative property investments in each country. The choice of countries for analysis is determined by the availability of portfolio-based returns series running back over a sufficient period to identify long-run returns characteristics. The comparisons show that in all four countries the cores of the office markets in the dominant financial centres have produced risk-adjusted returns inferior to those in other office markets, and other market sectors. On this evidence, the offices in major centres present the largest anomaly Ò running against the standard theories on risk-return trade off Ò in property investment performance. It would appear that returns have been systematically poor in the most liquid and best informed segments of the market, and that investors have maintained high Ò in some countries rising Ò exposure to markets with historically weak performance.