Office Property Values: European Regions through the Real Estate Cycle

Given the well-developed state of European office property markets, these markets remain still highly under-researched in literature. This paper bridges this gap in literature by presenting the first holistic view on European office price formation with regard to the macroeconomy, monetary policy and real estate idiosyncratic factors. For this purpose, we employ a panel data analysis of 29 European cities covering a time period from 1995q1 to 2020q1 and measure the effects on office capital values. By means of dummy variables we are able to split the time frame into before, during and after the financial crisis and examine whether and how the effects on capital values change. The results reveal that real estate fundamentals such as rental growth or vacancy are found to be most important price drivers. The findings of our regional cluster regression indicate that Germany and Switzerland perform most stable amongst other European markets during and after the GFC. Thus, the perception of Germany being a safe haven market holds true. Finally, we find evidence that office markets react very heterogeneous to different market conditions such as the GFC. Our results are robust to some changes in parameters. This study could help investors in improving their risk assessment as well as their portfolio diversification in European office markets.