Investigation Of Influencing Factors Determining Office Rents In German Meptropolitan Areas - An Empirical Analysis

Most office property valuations are based measuring the incoming cash flows of the property at hand. In other words, real estate valuers focus on the variable rent as the rental income accounts for the most part of all incoming cash flows. The level of rent, which the tenant is willing to pay, is determined by the physical/quality characteristics of the office building, its location and environment combined with the lease characteristics. Since the just mentioned characteristics are individual to each property as well as the intricacies of the contract between owner and occupier, valuation has always been difficult. Now, the task has become even more challenging as the recessionary real estate market conditions have changed the leasing practices for institutional grade office property. On the one hand, this market environment empowers tenants, seeking greater flexibility and reduced risk, to secure shorter leases or break options; on the other hand, tenants have the greater bargaining power leading to a multitude of different incentives such as long rent free periods or meeting the relocations costs by the owner. This paper aims at identifying the factors which determine office rents in German metropolitan areas. Furthermore, the paper attempts to identify whether office rent determinants are similar across all metropolitan areas and whether the different players in the real estate market perceive the determinants to be of equal importance in regard to their influence on office units. In comparison to the US and UK only limited research has been conducted in this field in Germany. In order to meet the above set objectives, data is collected via a mailed questionnaire survey. The content and design of the questionnaire was pre-tested. The survey will be sent to all alumni which completed the postgraduate programme of the ebs REAL ESTATE ACADEMY and will be completed in April/May 2006. As the papers analyses the market process and the way in which prices are set, the findings therefore do not only have an impact on valuers but also on property owners, developers, lawyers and financiers.