Yield Development In The Real Estate Office Market The Effect Of Obsolescence

The ROZ/IPD Property Index publishes the performance of the institutional investors in real estate in The Netherlands for the past 15 years. The index is based on property valuations. The valuation data is collected and creates a unique dataset. This large dataset gives great research opportunities and is therefore used for this article to analyze the obsolescence in the office market in The Netherlands. The last couple of years obsolescence had been hidden because of continuing sharpening of yield. Therefore this study will focus on four different approaches to show and analyze the obsolescence. The first approach covers an analysis of the reversionary yield compared to the exit yield. For the second approach the initial yield in relation to the year of construction of the property is analyzed. The third approach compares the yield of held properties (properties that are in the index for ten years) to the market yield in the benchmark. For the fourth and last approach we will look at the rents for office properties in relation to their year of construction. The study shows that the effect of obsolescence has been underestimated.