NY-LON: Does a Single Cross-Continental Office Market Exist?

This paper aims to examine the issue of economic diversification in the context of the office markets in New York and London. These two markets are two of the most liquid office markets and attract a large degree of international investment. However, both cities are key financial service centres and are heavily interlinked. The paper analyses the diversification opportunities available and the linkages between the two markets. These results are then compared against tests concerning the entire UK and US markets. The paper also examines the key driving forces behind the two markets, incorporating key financial indicators in the modeling. Markets such as New York and London will be heavily influenced by the actual performance of the capital markets and the financial institutions. If the markets are performing well, the profitability of institutions will on average tend to increase, leading to increased occupational demand. Ironically, therefore, an institution's own corporate performance may be a highly influential factor on the performance of its real estate portfolio. In addition, the linkages between the stock and real estate markets would also potentially have implications for the role of such markets within a mixedasset portfolio framework. If markets such as New York and London are linked in a fundamental sense to the stock markets, then investment in such markets may provide reduced diversification benefits when the real estate portfolio is considered as part of an overall mixed-asset portfolio.