European real estate market convergence

Purpose - The purpose of this paper is to test the extent of convergence in rents and yields in the European real estate office market. Design/methodology/approach - The paper uses the concepts of beta‐convergence and sigma‐convergence to evaluate empirically the hypothesis of rent and yield convergence in seven European office markets during the period 1982‐2009. Because of the introduction of a single currency in January 1999, the analysis is carried out sequentially, first for the overall sample period and then the periods before and after the introduction of the single currency. Findings - The results indicate that, irrespective of the time period considered, there is not enough statistical evidence of beta‐convergence in either rents or yields but evidence of significant sigma‐convergence in rents and yields in the European office markets under review. Additionally, some evidence is found that the introduction of the single currency in 1999 has led to increasing signs of convergence, especially in the Continental European markets. Practical implications - The results show that the real estate office markets in Europe are not fully integrated and so indicate that diversification across Europe is still a viable investment strategy. Originality/value - This is the first paper to use beta and sigma convergence tests on European office market data.