Time-varying effect of policy uncertainty, financial stress, global risk aversion and geopolitical risks factors on office yields in Europe

This paper examines the time-varying effect of global economic factors on office yields in Europe. Specifically, the study uses office yields of 16 European cities across 8 European countries from Q1 2007 to Q2 2024. Using Quantile Granger Causality Tests and Rolling Window Wavelet Correlation (RWWC) as estimation techniques, this paper specifically investigates the impact of Economic Policy Uncertainty (EPU), Financial Stress Index (FSI), Global Risk Aversion Index (GRAI), and Geopolitical Risk Index (GPR) on office yields in Europe. The findings reveal that financial hubs like Central London, Frankfurt, and Central Paris are particularly sensitive to global risks, especially during periods of heightened uncertainty, while cities like Lyon and Dublin are influenced more by local market dynamics. The analysis shows that these relationships are not uniform, with stronger impacts observed during times of economic stress and in the upper ranges of yield distributions. Short-term changes often reflect immediate reactions to financial shocks, while long-term trends highlight deeper, systemic risks. These insights emphasize the importance of understanding how global conditions and local market characteristics interact, providing valuable guidance for investors and policymakers navigating the complexities of European real estate markets.