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Capital Market Expectations and the London Office Market

  • Simon Stevenson

    ()

    (School of Real Estate & Planning, Henley Business School, University of Reading)

  • James Young

    ()

    (University of Auckland)

Registered author(s):

    The analysis of office market dynamics has generally concentrated on the impact of underlying fundamental demand and supply variables. This paper takes a slightly different approach to many previous examinations of rental dynamics. Within a Vector-Error-Correction framework the empirical analysis concentrates upon the impact of economic and financial variables on rents in the City of London and West End of London office markets. The impulse response and variance decomposition reveal that while lagged rental values and key demand drivers play a highly important role in the dynamics of rents, financial variables are also influential. Stock market performance not only influences the City of London market but also the West End, whilst the default spread plays an important role in recent years. It is argued that both series incorporate expectations about future economic performance and that this is the basis of their influence upon rental values.

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    File URL: http://www.reading.ac.uk/REP/fulltxt/0211.pdf
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    Paper provided by Henley Business School, Reading University in its series Real Estate & Planning Working Papers with number rep-wp2011-09.

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    Length: 26 pages
    Date of creation:
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    Handle: RePEc:rdg:repxwp:rep-wp2011-09
    Contact details of provider: Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
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    Web page: http://www.henley.reading.ac.uk/

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    1. Baum, Andrew E. & Lizieri, Colin & Scott, Peter, 1998. "Ownership, Occupation and Risk. A View of the City of London Office Marker," ERES eres1998_185, European Real Estate Society (ERES).
    2. Tuluca, Sorin A & Myer, F C Neil & Webb, James R, 2000. "Dynamics of Private and Public Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 21(3), pages 279-96, November.
    3. Ling, David C & Naranjo, Andy, 1997. "Economic Risk Factors and Commercial Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 14(3), pages 283-307, May.
    4. David C. Ling & Andy Naranjo, 1999. "The Integration of Commercial Real Estate Markets and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 483-515.
    5. Wheaton, William C & Torto, Raymond G & Evans, Peter, 1997. "The Cyclic Behavior of the Greater London Office Market," The Journal of Real Estate Finance and Economics, Springer, vol. 15(1), pages 77-92, July.
    6. Patric Hendershott & Colin Lizieri & Bryan MacGregor, 2010. "Asymmetric Adjustment in the City of London Office Market," The Journal of Real Estate Finance and Economics, Springer, vol. 41(1), pages 80-101, July.
    7. Allan W. Gregory, 1991. "Testing for Cointegration in Linear Quadratic Models," Working Papers 811, Queen's University, Department of Economics.
    8. Ming-Long Lee & Kevin C.H. Chiang, 2004. "Substitutability between Equity REITs and Mortgage REITs," Journal of Real Estate Research, American Real Estate Society, vol. 26(1), pages 95-114.
    9. Daniel C. Quan & Sheridan Titman, 1999. "Do Real Estate Prices and Stock Prices Move Together? An International Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 183-207.
    10. Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-57, March.
    11. Diery Seck, 1996. "The Substitutability of Real Estate Assets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(1), pages 75-95.
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