Office Market Research Articles

Rent-Seeking by Rent Concession: An Analysis of Rent-Free Periods in the Seoul Office Market

Rent-free periods (RFPs) have been used in property markets worldwide especially during economic downturns as a discount pricing strategy in marketing. However, this research study proposes that RFPs play a role in increasing or, at least, sustaining face rent that can be reflected in the property price. This study focuses on the Korean office market which has experienced growing vacancy rates since the global financial crisis possibly leading to a decrease in effective rent with greater RFP incentives. In this period, face rent has increased as offering extended RFPs. Hence, high vacant rates with high face rent have been observed, which is seemingly contradictory against the commonly known rent-vacancy negative relationship. This research analyses the rent, transaction prices and RFPs during 2003 – 2017 in the Seoul office market. The findings reveal that positive future anticipations of owners and investors are reflected in extended RFPs to sustain and increase face rent that will eventually lead to higher property transaction prices. The role of RFPs is not effective in attracting tenants as a marketing tool. Instead, professionals, including investors/buyers, owners/sellers and real estate agencies, have been doing rent-seeking by offering rent recessions in the Seoul office market.

Relationship Between Idiosyncratic Risk and Excess Rate of Return in Seoul Office Rental Market with Capitalization Rate

This study is conducted based on the assumption that the idiosyncratic risk in Sub-office rental markets in Seoul city, which are classified as CBD, GBD, YBD, and ETC(Other regions) area, would show a statistically significant relationship with the capitalization rate. To this end, the data used in this study are the income return data of the entire Seoul and regional office rental markets and CD(91) interest rate corresponding to the first quarter of 2013 to the first quarter of 2021. For the research method, Fama & Macbeth(1973), Kim Sung-shin(2016), and Lee Kyung-geun and Jeon Jae-beom(2021) etc. As a result, idiosyncratic risk are real in CBD, GBD, and YBD regions but ETC area, in CBD, GBD, and YBD, the relationship between idiosyncratic risks and excess capitalization rates was statistically significant but showed a difference in slope. It is believed that the change in office sales prices according to the determinants of idiosyncratic risks differed by region and office market.

Agglomeration Economies and Capitalization Rates: Evidence from the Dutch Real Estate Office Market

Agglomerations of economic activity result in higher rents for users. However, these benefits do not necessarily carry over to real estate investors because higher rents might also come with higher investment amounts and risks. We address this by testing whether the effects of agglomeration economies, as observed in office rents, carry over to capitalization rates as a theoretically more refined measurement of productivity externalities. Using transaction-based data for the period 1996-2011 in the Netherlands, we show that agglomeration economies result in capitalization rates that are 4.6 percent, or 40 basis points, lower.

A dynamic study of office opperating income,rent, and macroecomic variables - Focusing on the Seoul office market-

상업용부동산 가치는 DCF기법의 활용으로 상업용부동산의 자체적인 기본적 NOI(순운영 소득)을 근간으로 NOI의 극대화의 중심으로 이루어져 가고 있다. 따라서 본 논문에서는 서울시 도심권역, 강남권역, 여의도권역, 기타권역으로 분류하여 각각의 권역별 NOI와 공실률를 비교하였다. Granger인과검정 결과에 의하면 유일하게 공실률이 강남권역에 인과하였으며 강남권역 NOI에 외생성이 강한 변수는 거시경제변수들 중에서 고용률이 영향을 미치는 것으로 나타났다. 공적분검정 결과 장기균형관계를 확인하였다. 그리고 VECM모형을 이용하여 각각의 권역과 거시경제변수들과의 관계가 장기균형에서 벗어나는 경우 각각의 권역이 단기적으로 변화와 균형을 회복하는 것으로 나타났다. 충격반응분석을 통하여 외생변수들의 충격에 의하여 내생변수들의 반응의 정도를 수행하였다. 따라서 각각의 권역 중에서 기준금리의 충격으로 도심권역과 강남권역에서 양의 반응이 나타났다. 여의도권역에서는 고용률과 실업률의 충격 으로 음의 방향으로 하향하는 추세로 이어지고 있었으며 기타권역에서는 유동성이 장기적으로 양의 방향으로 상승하고 있는 것으로 실증분석되었다. 분산분해분석 결과 도심권역과 강남권역에서는 고용률, 여의도권역과 기타권역은 유동성이 장기적으로 큰 영향력이 있는 것으로 실증분석되었다.

Bank systemic risk exposure and office market interconnectedness

We empirically examine how systemic risk in the banking sector leads to correlated risk in office markets of global financial centers. In so doing, we compute an aggregated measure of systemic risk in financial centers as the cumulated expected capital shortfall of local financial institutions. Our identification strategy is based on a double counterfactual approach by comparing normal with financial distress periods as well as office with retail markets. We find that office market interconnectedness arises from systemic risk during financial turmoil periods. Office market performance in a financial center is affected by returns of systemically linked financial center office markets only during a systemic banking crisis. In contrast, there is no evidence of correlated risk during normal times and among the within-city counterfactual retail sector. The decline in office market returns during a banking crisis is larger in financial centers compared to non-financial centers.

Green Premium in the Tokyo Office Rent Market

More than 10 years have passed since studies on green buildings gained attention in the academic and industrial literature. Many studies report the economic value of green buildings, mainly in the U.S. and European markets. An empirical clarification of the dynamics of green premiums has significant implications for future urban sustainability. This study constructed a dataset of Tokyo office rents from 2009 to 2019. We estimated the green office rental premium using a hedonic approach. Our results show that, on average, an office property with a green label gains a premium of approximately 6.5% on contract rents. The Tokyo office market is heterogeneous, and endogeneity is an issue when identifying the green premium. We addressed the endogeneity issue with propensity score clustering. As a result of our estimation, the premium was approximately +5.4% for medium-sized old buildings and +2.6% for large-sized new buildings.

The perspective of coworking offices in the context of the small business development

Basing on the experience of countries where coworking is developing dynamically, the study assesses the development prospects of coworking in Poland. It identified the opportunities and threats as well as strengths and weaknesses of this form of approaching office space in the conditions of the Polish real estate market. SWOT analysis is used as a methodology to capture the advantages of new concept of business office. To this end, statistical and econometric tools were used. The study revealed strong entrepreneurs' attachment to the ownership of office buildings used for their own purposes and the correlation between the number of coworking facilities and the number of small companies, especially in the service sector. The advantages and disadvantages of coworking offices were also pointed out, in the context of the expectations of modern lessees. The opinions of women and men about the features typical of coworking offices vary considerably, which also may be a subject for further research. The existing surveys from the local market were also referred to, which may serve as a premise for further studies. This requires a global research to capture the change and its implication on real estate market in Poland and its impact on office market. The study recommendation is to celebrate and entrepreneurial activity and introduce entrepreneurial studies at schools to influence a positive change. Research indicates that the working culture is changing, which are reflected in the use of office space, and that after a period of social distancing the approach to shaping social relationships within office work will change as well. The research might therefore assist in revealing further “understanding” forms of interactions and mechanisms of decisions about best form of office space. The study findings fill the research gap in the field of office space sharing. They are also an important indication for potential investors who are looking for new investment areas in the times of pandemic. Moreover, the analyses results will allow lessees of traditional office space to consider alternative solutions for the future while seeking to improve their business situation after restrictions imposed in 2020. In this study, has enabled new insights into the coworking office and social role this form of work, which capture the behavioral and cultural factors.

Analysis of the Dynamic Correlation between Housing Market and Office Market

This study demonstrated the dynamic correlation among the Seoul housing sales price, the Seoul housing rent price, the Seoul apartment lease price, the large office building rent pice, and the vacancy rate from the first quarter of 2009 to the last quarter of 2020 by a time series analysis. As the result of analysis, it is confirmed that there are no cointegration relation among the variables, so VAR model is selected for the next analysis. Also, from Granger causality test, this study confirmed that SRLI Granger Cause SRRI, SRRI Granger Cause SRSI, SRSI Granger Cause SOV and SOV Granger Cause SOR sequentially. Based on the results of Granger causality this study choose the ordering of variables for the impulse response function and analyzed it. Main results from the analysis are as follows. First, for the shock to SRLI, SRRI has positive response by 7 quarters and then, converge to 0 and SRSI has negative response after 2 quarters, and then the effect disappeared. Second, for the shock of SRLI, SOV and SOR have positive responses respectively, and then, the magnitude of the effects is not significant.

Pricing office rents in Sydney CBD: testing the water on automated rent reviews

PurposeAutomated valuation models (AVMs) are statistical asset pricing models omnipresent in residential real estate markets, where they inform property tax assessment, mortgage underwriting and marketing. Use of these asset pricing models outside of residential real estate is rare. The purpose of the paper is to explore key characteristics of commercial office lease contracts and test an application in estimating office market rental prices using an AVM.Design/methodology/approachThe authors apply a semi-log ordinary least squares hedonic regression approach to estimate either contract rent or the total costs of occupancy (TOC) (“grossed up” rent). Furthermore, the authors adopt a training/test split in the observed leasing data to evaluate the accuracy of using these pricing models for prediction. In the study, 80% of the samples are randomly selected to train the AVM and 20% was held back to test accuracy out of sample. A naive prediction model is used to establish accuracy prediction benchmarks for the AVM using the out-of-sample test data. To evaluate the performance of the AVM, the authors use a Monte Carlo simulation to run the selection process 100 times and calculate the test dataset's mean error (ME), mean absolute error (MAE), mean absolute percentage error (MAPE), median absolute percentage error (MdAPE), coefficient of dispersion (COD) and the training model's r-squared statistic (R2) for each run.FindingsUsing a sample of office lease transactions in Sydney CBD (Central Business District), Australia, the authors demonstrate accuracy statistics that are comparable to those used in residential valuation and outperform a naive model.Originality/valueAVMs in an office leasing context have significant implications for practice. First, an AVM can act as an impartial arbiter in market rent review disputes. Second, the technology may enable frequent market rent reviews as a lease negotiation strategy that allows tenants and property owners to share market risk by limiting concerns over high costs and adversarial litigation that can emerge in a market rent review dispute.

Location, location, location!*: a quality-adjusted rent index for the Oslo office market

PurposeCommonly used rent indices are based on average developments or expert opinions. Such indices often suffer from compositional biases or low data coverage. The purpose of this paper is to overcome these challenges using the authors' approach.Design/methodology/approachThe authors construct a quality-adjusted rent index for the office market in Oslo using detailed data from 14,171 rental contracts.FindingsThe authors show that compositional biases can have a large impact on rental price developments. By adding building-fixed effects to a standard hedonic regression model, the authors show that the explanatory power increases considerably. Furthermore, indices excluding location-specific information, or which include less granular location controls than at the building level, portray quite a different picture of rent developments than indices that do take this into account. The authors also exploit information on contract signature date and find that a more timely detection of turning points can be achieved by using the signature date instead of the more typically used start date of the lease.Research limitations/implicationsThe study is confined to Norwegian data, and an avenue for future research would be to explore if similar results are obtained for other countries. A weakness with the paper is that authors' do not observe quality changes over time, such as renovation. Controlling for time-varying and unit-specific attributes in hedonic models for the commercial real estate (CRE) market would be useful to purge indices further for compositional effects and unobserved heterogeneity. While the authors do control for building-fixed effects, there are additional variations within a building (floor, view, sunlight, etc.) that the authors do not capture. Studies that could control for this would certainly be welcome, both in order to estimate the value of such amenities and to see how it affects estimated rent developments. Another promising avenue for future research is to link data on rental contracts in the CRE market with firm-specific information in order to explore how firm profitability and liquidity may affect rental contracts.Practical implicationsThe authors show that the hedonic index yields a sharper fall in rents after the global financial crisis and more muted developments in the period between 2013 and 2015 than the average rent index. The results show that rents have followed their estimated equilibrium closely and have re-adjusted quickly in periods of deviation. From a financial stability perspective, the risk of a sharp fall in rents is reduced because rents often are in line with their fundamentals.Social implicationsThe authors find that a more timely detection of turning points can be achieved by using information on the signature date. This is an important finding. The financial system is heavily exposed toward CRE, and timely detection of turning points is critical for policymakers.Originality/valueThe financial system is heavily exposed toward the commercial real estate market and timely detection of turning points is of major importance to policymakers. Finally, the authors use our quality-adjusted rent index as the dependent variable in an error correction model. The authors find that employment and stock of offices are important explanatory variables. Moreover, the results show that rents have followed their estimated equilibrium path.

The marketization of the French public finance before capitalism: The paulette edict of 1604

The sovereign debt market represents one of the most active and highly regarded fields of financial transaction. Nevertheless, the trading of public debt securities is no natural phenomenon. It is the fruit of a long social and political process. We have chosen the history of France’s public finances as the subject of our empirical investigation because France represents a unique example of marketization of state finances outside the capitalist mode of production. We posit that the birth of this market system can be traced back to the introduction of the paulette tax in 1604, a reform which modified the rules governing the granting, valuation and transmission of public offices, creating the necessary conditions for a market on which these titles could be exchanged freely. This paper is based on archival research and information gathered from the French National Archives and the Bibliothèque Nationale de France (BNF). The concept of socio-technical devices proposed by Çalışkan and Callon provides a theoretical reference framework to the extent that it allows us to define the nature of the market relations established. However, the case of the office market brings to the fore the need to distinguish between marketization and the notion of market agencement. The market for offices came about less from economic theories or practices than from political and social ones. The office market followed the sovereignty imperatives of the state.

Green Building Adoption on Office Markets in Europe: An Empirical Investigation into LEED Certification

The goal of the paper is to evaluate the impact of selected factors on the adoption of LEED (Leadership in Energy and Environmental Design) green building certification in Europe. In the empirical part of the paper we track the fraction of LEED-registered office space in selected European cities, and assess the impact of selected socioeconomic and environmental factors on the certification adoption rate. This research contributes to the ongoing debate about the adoption of green buildings in commercial property markets. In this paper, we investigate factors affecting the adoption of LEED certification using the Arellano and Bond generalized method-of-moments estimator. Compared to prior studies, which relied on cross-sectional data, our research uses a panel approach to investigate the changes in green building adoption rates in selected European cities. Among the cities that are quickly adopting LEED are Frankfurt, Warsaw, Stockholm, and Dublin. The adoption process was not equally fast in Brussels and Copenhagen. Using the dynamic panel model approach, we found that the adoption of green building certification is linked to overall innovativeness in the economy and the perceived greenness of the city. Contrary to some previous studies we did not observe links between the size of the office market and the LEED adoption rate.

The effect of LEED certification on office rental values in China

With the increasing awareness of environmental protection, the real estate sector has proposed green buildings to achieve the sustainability of the building environment. Although the advantages of these sustainable features of green buildings are apparent, the effect of green buildings on the real estate economic values in China is not evident. This study aims to investigate whether and to what extent LEED certification can impact the rental values of the office market in China. This study analyzes an overall sample of China comprising 50 LEED-certified and 50 non-LEED offices and two local samples of Shanghai and Beijing each, based on a hedonic price model. The results suggest that the rental premium for LEED-certified in the China sample is 19.5%, while that in Shanghai and Beijing samples are 25.5% and 20.8%, respectively. Furthermore, other variables, such as utilization time, floors, construction area, building class, and GDP, are also correlated with rental values. As an early study on the impact of green certifications on the Chinese real estate market, this research provides investors with empirical data to evaluate the investment value of introducing green certifications and serves as a reference for future explorations of green certifications in the Chinese real estate market.

COVID-19 and the economic implications for office occupiers

The COVID-19 pandemic has been a severe shock to the world economy and the renewed surges in late 2020 and early 2021 have been an unwelcome development. Nonetheless, the prospect of mass vaccination has opened up the possibility of a return to some kind of social and economic normality in the second half of the year. This paper focuses on economic prospects, both in the UK and elsewhere, and what it means for office occupiers. When the restrictions associated with the pandemic are eased and then eventually removed, there are several reasons to be optimistic about the prospects for economic recovery. Households have built up considerable savings over the last year as their incomes have been supported by governments and their spending plans have been thwarted. This is likely to lead to a rush in spending on travel and leisure services when the opportunity arises. Governments also appear committed to providing continued support for the economy for the time being. Both of these factors bode well for an economic recovery and a recovery in labour demand, including demand from office-based sectors. This is in stark contrast to the aftermath of the global financial crisis (GFC). It may turn out that the lasting impact of the crisis on real estate come not from any lingering effects on the economy but from some of the rather less expected consequences. Chief among these for office occupiers is the potential for a structural shift towards more working from home even when it is safe for employees to return to the office. Working from home versus working in the office is not a clear-cut decision and a hybrid model is likely to emerge that sees some but not all days spent working from home. There are also complications in realising the potential occupational cost savings from having more working from home. The overall result will be that a switch to more working from home will certainly have an impact, but it might not be the devastating impact on the office market that some expect. It will, nevertheless, be a topic of debate for many years to come.

Obsolescence as an Opportunity: The Role of Adaptive Reuse in Calgary's Office Market

Though remote work has become a necessity during the COVID-19 pandemic, the rise of office vacancy is not a new issue to Calgary. Economic booms and busts are mirrored by accompanying levels of construction, occupancy and vacancy. The most recent recession brought an unprecedented loss of jobs and subsequent partial or complete vacancy of buildings in Calgary’s Central Business District (CBD). This new reality led to the agglomeration and elimination of businesses and re-evaluation of the necessity of office space and its associated costs. Trends in the knowledge economy and ways of working over the preceding decades have coincided with associated vacancy of office space that is no longer adaptable to the changing needs and demands of office design. These patterns have reduced the demand of certain office stock and highlighted limits on its versatility and capacity to be repurposed, making a certain proportion of buildings relatively obsolete. Office conversion, being changing the use or uses of a building, has also become increasingly arduous with updates in planning rules and building, energy and safety codes. When considering conversion of office to other uses the standard solution usually discussed is office to residential conversion. While this may present as the optimal approach in some cases, there are many limitations when it comes to converting buildings. Since the economic downturn some projects have been piloted by the City of Calgary to facilitate office conversion including the Centre City Enterprise Area. While some successes have come from these relatively short-term solutions they have been limited in addressing the full extent of the situation. These small-scale interventions were successful in reducing customer costs and timelines however did not result in recommendations of longer-term solutions for widespread changes. Complex problems such as office vacancy in Calgary require comprehensive, adaptable and innovative strategies. To update and improve the existing processes to more simply enable office conversion or adaptation there is a necessity to clearly outline the role of everyone involved, the limitations, and the potential options that may exist. In this regard it is not simply the question of the use of land and the building footprint but also the building owner, the surrounding stakeholders including business associations, municipal government, provincial government and a variety of other related parties. This paper examines the present state of office vacancy in downtown Calgary; looks at barriers to office conversion, limitations in existing processes and structures and potential policy considerations, drawing upon best practices from other jurisdictions. Finally, it will conclude with a series of policy recommendations and mechanisms which may enable efficiency and innovation in addressing the existing office stock.

Obsolescence as an Opportunity: The Role of Adaptive Reuse in Calgary's Office Market

Obsolescence as an Opportunity: The Role of Adaptive Reuse in Calgary's Office Market

A Study on Tenant Improvement in Seoul Office Market

서울 오피스시장에서는 임대인이 임차인에게 인테리어 비용을 지원하는 실질임대료 지원방식인 티아이가 확산되고 있다. 그러나 이에 대한 자료수집과 연구는 전무하다. 본 연구는 시장에서 쓰이는 실질임대료 지원방식인 렌트프리, 핏아웃, 티아이에 대한 정의, 발생 배경, 시장에서 어떻게 사용이 되는지 등을 설명하였다. 2016년 4분기 국내 오피스시장에서 티아이를 지급하는 빌딩은 총 19개로 확인되었다. 이들의 특징은 대형 신축 빌딩으로 이에 따라 임대료, 관리비가 높은 수준이었으나 높은 공실률을 보였다. 렌트프리, 핏아웃, 티아이와 같은 실질임대료 지원방식에 따른 임대차계약 시뮬레이션 분석 결과 임대인에게 가장 효과적인 지원방식은 렌트프리와 티아이를 지원 하되, 티아이는 공사비 대납의 형태로 지원하고, 해당 금액을 임대인이 매년 감가상각하는 방식이었다. 반면 임차인에게 가장 효과적인 지원방식은 임대인으로부터 렌트프리와 티아이를 지급 받되, 티아이 금액을 임대인에게 현금으로 지급받고, 공사비는 임차인의 자산으로 인식 후 감가상각하는 방식임을 알 수 있었다.

Quantification of financial consequences of buildings' ageing: analysis of panel building-level data from the Polish office space market

PurposeRelying on a unique proprietary Polish office market space database, the paper attempts to quantify the impact of buildings' age on the financial performance of real estate assets.Design/methodology/approachPanel econometric modeling was utilized to disentangle the impact of buildings' functional obsolescence and technical deterioration on their long-term financial performance.FindingsIn line with casual empiricism, our findings show a negative associative link between properties' age and potential lease revenue. The concomitant stickiness of service charges presages a possible long-term deterioration of financial outcomes of real estate investments. While older buildings generally have higher occupancy rates, the absorption rates are found to be negatively affected by the properties' age. On the bright side, the elasticity of vacancy rate with respect to rental rates is found to decrease as buildings get older. Further, the rent differential is confirmed to be more pronounced in higher age properties hinting at an existing potential for price discrimination, which may at least partially compensate for stagnant rents.Originality/valueOur empirical results confirm the properties' age to be a statistically significant factor in shaping the long-term performance of real estate assets, which should be better accounted for in financial projections for real estate developments.

DYNAMICS AND ASYMMETRIC RENT ADJUSTMENTS IN THE OFFICE MARKET IN WARSAW

Dynamics of rent, vacancy, supply and demand on the office market of emerging commercial real estate markets have long been under-researched. The paper fills the gap in economic literature by investigating the growing office market in Warsaw. In particular, we evaluate whether the influence of demand and supply shocks differ depending on the current market conditions. Using Error Correction Model approach, we investigated the rent adjustments on the office market in Warsaw, which is the major property market in Central and Eastern Europe. We replaced variables of the basic model with asymmetric variables to check for asymmetric adjustments in the office market. The study period covers data from 2005:1Q to 2016:1Q. The empirical results suggest that demand shock had a stronger impact on rent when the market vacancy rate was below the average for the period considered. Additionally, the demand shock had a stronger impact on rent when the rent was above the equilibrium level.

Distortions in a segment of the commercial office market: the case of medical office buildings

ABSTRACT This article examines the U.S. market for Medical Office Buildings (MOB), a segment of the office market that has received little attention in the academic literature. Our attention is directed towards the impact of Certificate-of-Need (CON), a set of state level distortionary public laws that regulate health services planning. With respect to real estate, we find CON regulations increase rents and sales prices medical office building (MOB) rental rates. What makes these findings particularly interesting is that none of the states that currently have CON legislation in place have any language restricting MOB development. The empirical findings suggest that there is a supply constraint due to CON that has a distortionary effect on the MOB market.