Office Rents Research Articles

Does Energy Performance Rating Affect Office Rents? A Study of the UK Office Market

Environmental concerns and the rise in energy costs have heightened the focus on reducing CO2 emissions within the built environment. By concentrating on the office market in the UK, where a significant portion of a service-based economy operates, progress towards achieving emission reduction goals could be accelerated. Nevertheless, the speed at which this sector can enhance its environmental impact and whether individuals are willing to invest in energy-efficient measures and new energy-efficient buildings has remained uncertain. This paper investigates the influence of varying Energy Performance Certificate (EPC) ratings on the rental rates of office buildings in the UK, drawing on an extensive dataset spanning the years of 2011–2021. Our research seeks to determine whether there exists a willingness to pay for more energy-efficient office spaces by assessing whether there is a rental premium associated with office building with higher EPC ratings. Furthermore, we examine whether buildings failing to meet minimum energy efficiency standard (defined as EPC ratings of F and G) experience rental discounts. Our findings, which take into account heteroscedasticity and various disaggregations within the office market, consistently reveal a willingness to pay for energy-efficient office spaces.

The Impact of the Flight to Quality on Office Rents and Vacancy Rates in Tokyo

Abstract With the rapid spread of telecommuting since the COVID-19 pandemic, companies have been relocating to high-end business centers, thereby enhancing the workplace experience for employees, a phenomenon called the "flight to quality." However, this trend’s impact on rents and vacancy rates in individual office buildings has not been extensively studied. To determine the effects of the flight-to-quality phenomenon on individual buildings, we examine the impact of modern amenities, which directly influence employee lifestyles, on rents and vacancy rates in the Tokyo office market. Using a propensity score-based quasi-experimental method, we find that commercial properties with such modern amenities command higher rents and experience lower vacancy rates than those without. The difference in vacancy rates has increased since 2020. However, the significance of these amenities diminishes for properties less competitive in age, size, and location. The results indicate that the "flight to quality" may further polarize the office real estate market into two categories: one for high-end buildings experiencing increasing demand, and another for those with modest amenities experiencing decreasing demand. The findings have implications for office building owners/investors and the government, make educated decisions as to whether to invest in modern amenities, join the quality competition, or encourage urban restructuring.

Factor Analysis of Office Rent in the Kuala Lumpur City Centre Area

The office rental market often relates to good investment opportunities since it draws a lot of capital but comes with a substantial return. It somehow possessed a complicated market structure, and the heterogeneity of office buildings has become a challenge for investors and real estate practitioners to analyse office rentals data. This research seeks to analyse an office rental factor analysis based on data evidence from the Kuala Lumpur city centre, using two different approaches: Manual SPSS and AutoModel RapidMiner. Quantitative data, obtained through secondary data of office rental transactions, consist of a data set that includes 542 office rental transactions from 2015 to 2021. The results from the two different approaches were significantly related by studying the correlation value achieved through the AutoModel and Spearman rank correlation. The three determinants, namely green certificates, building appearance and design, and amenities and in-house services, can be identified as strong determinants. The research findings also provide support for the use of both manual and automated approaches in factor analysis and suggest that they can be used interchangeably to achieve similar results. This research allowed for a more comprehensive understanding of the office rental market in Kuala Lumpur, and provided real estate practitioners with useful insights into factors that influence office rental prices.

The added value of environmental certification in the Dutch office market

Purpose This study examines the relationship between environmental building certification Building Research Establishment Environmental Assessment Method (BREEAM-NL) and office rents in the Dutch office market.Design/methodology/approach A hedonic price model was used to assess the impact of BREEAM certification on office rents. The study is based on 4,355 rent transactions in the period 2015 to mid-2022, in which 331 transactions took place in certified office buildings and 4,024 transactions in non-certified office buildings.Findings The results provide empirical evidence on quantitative economic benefits of BREEAM-certified offices in the Netherlands. After controlling for all important office rent determinants, the results show a rental premium for certified office buildings of 10.3% on average. The green premiums highly differ across submarkets and vary between 5.1 and 12.6% in the five largest Dutch cities. Additionally, the results show significant positive correlation between BREEAM-NL label score and rents, whereby better performing buildings generally command higher rents.Originality/value The study contributes to the current literature on green building economics by providing, as one of the first, empirical evidence on the existence of financial benefits for BREEAM-certified office buildings in the Dutch office market.

Determinants of office rents: the role of physical and locational characteristics in Colombo

PurposeThis paper examines rent determinants and their relationship with commercial office property rents.Design/methodology/approachThe method adopted in this study differs from that of previous studies on this topic. Firstly, based on the survey of the viewpoints of experts, Relative Importance Index (RII) analysis was used to identify rent determinants and to rank and ensure their relevance and validity in the Sri Lankan context. Secondly, sampling of data related to 115 office properties collected from property tenants and landlords located within the central built-up area of Colombo City was conducted using a multi-methods approach to carry out an objective hedonic analysis of office rents.FindingsThis research utilizes RII and hedonic models to provide insights into determinants and relationships. Both analyses confirm that the three top drivers of commercial office rent are distance from the major town center, availability of parking space and the condition of the property. In addition to these three factors, hedonic models reveal that the age of the property and the availability of a conference hall also play a relevant role in explaining office rents. Given the disparities in the findings of the two methods, further examination was able to confirm that factors such as distance from the major town center, parking availability, age of the property, presence of a conference hall, building condition, floor size, business type and type of building are likely to influence commercial office rent. These findings reflect elements such as the quality, newness and better facilities of different office properties.Practical implicationsThis systematic study and analysis of office rent for the guidance of real estate investors can support sound investment decisions, potentially leading to more financially sound property development, reduced public debt levels and improved public-private financing. Further, the research findings offer valuable insights to real estate investors, developers and planners regarding location decisions for office development quality enhancements in future office developments.Originality/valueThis research provides fresh insights into the local scale office market, an area where limited evidence currently exists. Further, the methodology adopted provides evidence that hedonic analysis, supported by a multi-method approach, can mitigate the subjective judgments made by professionals.

Spillover Effect of Large Building Construction on Neighborhood Office Rents

The impact of newly constructed buildings on local property markets can be explained by tradeoffs between the supply effect, absorbing demand and reducing rents, and the amenity effect, attracting new amenities and increasing rent. While scholars are increasingly discussing the effects of this tradeoff, particularly in the residential market, work on the office market—a major component of urban areas—is scarce. This study aims to identify these tradeoffs in the Tokyo office market using two identification strategies based on an event study plot. The results indicate a strong spillover of supply effects to lower-tier office buildings. However, in suburban areas, new supply was found to decrease rents for medium-sized office buildings while increasing rents for small ones. In all cases, similarly sized office buildings near the new buildings were not significantly affected. These findings suggest that new supply leads to a filtering process and gentrification and, moreover, that these effects depend on location and size. Furthermore, the results suggest that the new Tokyo supply stimulates latent demand. Such an effect may be unique to a market in which vacancies are low and development is thriving. Our findings are important for investors seeking to understand urban dynamics and optimize their portfolios.

ДОСЛІДЖЕННЯ ЕКОНОМІЧНОЇ ЕФЕКТИВНОСТІ СТВОРЕННЯ БАЛАНСУЮЧИХ ГРУП НА РИНКУ ПРИРОДНОГО ГАЗУ

In the circumstances of the Ukrainian natural gas market crisis, companies engaged in the wholesale and retail of natural gas confronted with the following challenges: debts for payment of natural gas supplied, decrease in business profitability. At the same time, expenses for wages, office rent, payment of utilities and other operating expenses remain constant. Therefore, the search for ways to reduce the losses of the enterprise that supplies energy resources is important for the stable operation of the enterprise and the economy of Ukraine as a whole. One of them minimizing imbalances. Accurate forecasting and planning play a pivotal role in minimizing imbalances. Utilizing advanced forecasting tools and methodologies enables suppliers to predict consumption patterns more precisely, thus reducing the need for costly imbalance coverages. Offering flexible contract terms to customers allows suppliers to adjust supply according to demand fluctuations more efficiently, mitigating the impact of imbalances. Moreover, some suppliers provide balancing services to assist smaller participants in managing their imbalances effectively. By pooling resources and optimizing operations across multiple participants, overall costs associated with imbalance coverage can be minimized. Integration of advanced technologies, such as real-time monitoring, data analytics, and automation, enhances operational efficiency and enables faster response to imbalances, thereby reducing associated costs. Losses on commercial balancing can now be up to 26% of the margin. The work reveals how natural gas supplier companies lose money due to imbalances and analyzed losses during self-balancing of companies with different supply volumes. Joining a balancing group to reduce losses to cover imbalances is considered. Different options of balancing groups are modeled and analyzed depending on the number of participants, their supply capacities, and the possibility of savings for each option of the balancing group is demonstrated. An analysis of balancing losses for each individual company revealed a significant difference in balancing losses. An assumption is made about the importance of self-balancing. The possibility of reducing losses on imbalances up to 79%, provided that the group has from two to six participants, compared to balancing without a balancing group, has been demonstrated. Which in the context of marginality gives a reduction in margin losses from 20,98% to 4,50%. Which is a 4,66 times reduction in balancing losses. It has been confirmed that participation in a balancing group is appropriate for any two or more participants, provided that there are two participants in the group, then joining the balancing group allows you to reduce commercial balancing losses by up to 90%, depending on the number of participants in the balancing group, the volume of their supplies and balancing qualities.

HEDONIC MODELING OF OFFICE RENTS WITH SEMIPARAMETRIC GEOADDITIVE APPROACH: A CASE OF ISTANBUL OFFICE MARKET

This study aims to establish a hedonic model for office space rents in Istanbul using a dataset of 2348 office spaces. The dataset includes information on office space and building characteristics, as well as lease, locational, and neighborhood characteristics that influence office rent. To analyze the relationship between office rent and these determinants, we utilized a semiparametric geoadditive model that allows for functional form flexibility and captures locational effects through geographical smoothing functions instead of locational dummies. Our findings suggest that the relationship between office rent determinants and office space rents is nonlinear in the nonparametric part of the model. Among the office rent determinants, the vacancy rate - a proxy of office space demand - has the greatest impact on office rents. The second most effective determinant is Class A, an indicator of office building quality, and the third most effective determinant is the possession of a Bosporus view.

‘Space-as-a-service’: A premium to office rents?

PurposeThis study aims to examine the impact of “space-as-a-service” (SAAS) provision on office rents in the UK and quantify premia to office rents.Design/methodology/approachUsing hedonic modelling techniques the authors are able to quantify the impact of a number of SAAS features on office rents in the City of London using CoStar data. The authors control for the quality of the buildings by focussing on five-star buildings, rated by CoStar, as these buildings are more likely to incorporate SAAS features.FindingsUsing data on 317 transactions in 37 City of London Office buildings over the period 1 November 2004–15 July 2020, the authors find that tenant exclusive mobile applications (MAPPS) and a public terrace or rooftop command a rent premium of around £13 and £6.5 per sq. ft per annum, respectively. However, other SAAS features such as conferencing facilities, on-site fitness centre and touch down space have no significant impact on office rents. The impact of exclusive MAPPS varies with size of net lettable area.Research limitations/implicationsThe SAAS real estate model is an emerging trend in the office market. As it grows in importance more research questions will have to be investigated. The present study raises awareness of the need to specify SAAS features and form a rating system that will facilitate future research on the subject.Practical implicationsThe conclusion from the present investigation is that only two SAAS features have a positive impact on office (tenant exclusive mobile apps and a public terrace or rooftop), which suggest that these two features may form the basis of any future SAAS rating system. These two SAAS components should carry more weight in valuations and pricing.Originality/valueTo the best of the authors’ knowledge, this is the first study that attempts to quantify the impact of SAAS features on office rents.

An Asymmetric Panel Error-Correction Model of Australian Office Rents

The econometric modelling of real estate can encounter a number of issues due to the functional utility and investment characteristics of property assets. One issue of particular importance is the inherent mismatch between inelastic supply and elastic demand. We examine the office markets in the five largest Australian cities using an asymmetric panel error-correction framework. It is found that prime office markets responded to both changes in demand and supply as expected. However, secondary markets responded in most specifications to demand with a subdued rent response arising from reduced stock availability. This finding raises several questions concerning the relationship between prime and secondary office markets.

Spillover Effect of Large Building Construction on Neighborhood Office Rents

Spillover Effect of Large Building Construction on Neighborhood Office Rents

The Impact of the "Flight to Quality": Trends and Heterogeneity of Modern Amenity Premiums for Office Rent and Vacancy

The Impact of the "Flight to Quality": Trends and Heterogeneity of Modern Amenity Premiums for Office Rent and Vacancy

The COVID-19 Sentiment and Office Markets: Evidence from China

This study examines the impact of COVID-19 sentiment on office building rents and vacancy rates in China with a COVID-19 sentiment index constructed based on Baidu search queries on COVID-19-related keywords. We analyzed the data of office buildings and economic data from 2013 Q3 to 2022 Q2 in seven major Chinese cities with a two-stage Error Correction Model framework. We found that a heightened level of COVID-19 sentiment significantly and adversely affects the Chinese office buildings market. Specifically, office building rents decrease more than 8% if a city is exposed to an increase of one unit of COVID-19 sentiment for an entire quarter. The interaction terms model further reveals that the COVID-19 sentiment has a more substantial impact on office building rents where office vacancy is higher, reflecting an asymmetric effect. The findings here support the fear sentiment hypothesis. The findings suggest that a heightened level of investors’ COVID-19 sentiment resulted in a deterioration of office rents, reinforcing the role of investors’ sentiment in the pricing of office buildings. The findings suggest that investors should consider investor sentiment, particularly COVID-19 sentiment, in their decision-making.

Forecasting office rents with ensemble models – the case for European real estate markets

PurposeCommercial real estate and office rental values, in particular, have long been the focus of research. Several forecasting frameworks for office rental values in multivariate and univariate fashions have been proposed. Recent developments in time series forecasting using machine learning and deep learning methods offer an opportunity to update traditional univariate forecasting frameworks.Design/methodology/approachWith the aim to extend research on univariate rent forecasting a hybrid methodology combining both ARIMA and a neural network model is proposed to exploit the unique strengths of both methods in linear and nonlinear modelling. N-BEATS, a deep learning algorithm that has demonstrated state-of-the-art forecasting performance in major forecasting competitions, are explained. With the ARIMA model, it is jointly applied to the office rental dataset to produce forecasts for four-quarters ahead.FindingsWhen the approach is applied to a dataset of 21 major European office cities, the results show that the ensemble model can be an effective approach to improve the prediction accuracy achieved by each of the models used separately.Practical implicationsReal estate forecasting is essential for assessing the value of managing portfolios and for evaluating investment strategies. The approach applied in this paper confirms the heterogeneity of real estate markets. The application of mixed modelling via linear and nonlinear methods decreases the uncertainty of abrupt changes in rents.Originality/valueTo the best of the authors' knowledge, no such application of a hybrid model updating classical statistical forecasting with a deep learning neural network approach in the field of commercial real estate rent forecasting has been undertaken.

Dynamic analysis of Istanbul office markets with highest demand and office rent

From the 1980s onwards, restructuring of economy and globalization has increased the size and number of companies in Istanbul and demand for modern office space which cannot be provided in the old CBD due to construction restrictions. Thus, multi-center development has started in the city in order to answer to the growing demand for modern office markets. The present study investigated the growth and decline of office rents in office markets which have highest demand and office rents. According to the results of the study, while office rents in the office markets with growth potential have increased, that of the markets with supply increased dramatically between 2011 and 2016. On the other hand, while office rents in all of the office markets were sharply declined in 2021 due to devaluation of Turkish Lira against USD. Although the pandemic has made Work from Home (WFH) and Hybrid working models a global trend, A class office demand stayed strong due to well-being requirements on office area. Thus, it is expected to have a positive impact on the economy of the city.

Pandering and state-specific costs of mismatch in political agency

We study the implications of state-dependent costs of policy mismatch in political agency models where politicians have reputational concerns and “good” politicians share the same objectives as the voters. We find that state-dependent costs can increase the set of parameters where pandering is an equilibrium strategy. Indeed, in our model, pandering can arise even without office rents. Moreover, we show that voters do not necessarily prefer biased politicians to be in favour of the policy that produces the cheapest expected cost of mismatch.We discuss the implications of those results for populism, environmental policies and the equilibrium incentives to over- or under-provide lockdowns or other mitigation measures.

Why do they go to the peripheries? Studying the relations between the real estate market and coworking spaces in the peripheral areas of Germany

PurposeThe study was designed to investigate the bidirectional causation between the real estate market characteristics (residential property prices/rents (including PTR), office rents) and the rise of coworking spaces (CSs) in the peripheral areas of Germany.Design/methodology/approachBased on the desk research, the authors constructed their own database of 1,201 CSs. The authors gathered data on the residential and office prices and rents on a district level. To identify real market differences between districts with and without CSs, the authors applied the t-test for independent samples.FindingsThe second-highest number of CSs were found to operate in the office market peripheries. This phenomenon should be explained by a search for lower office rents, which CSs seek. Most CSs in the peripheral areas of Germany were only recently established in tourist-oriented regions in the south and north of Germany. In this paper, the authors confirmed that the strength of peripheral CSs lies in the hybridity of their operations: for the majority of CSs, running a CS is a non-core business. The authors argue that the role of CSs is rather limited in attracting real estate investors and boosting the real estate market in the peripheral areas of Germany.Practical implicationsThe research shows that peripheral locations are attracting CSs to significant extent. The study shows that CSs can be part of corporate real estate or workplace strategies. As the majority of peripheral CSs are located in tourism areas, the subletting of vacant spaces could be a lucrative business model for hotels, particularly in the times of pandemics. Therefore, further research should focus on the role of tourist areas in the implementation of CSs model.Originality/valueThe focus of this study (CSs in peripheral areas) is original. Additionally, applying the real estate perspective to study the location of CSs is novel as well.

Impact of working from home on European office rents and vacancy rates

The massive shift to working from home during the Covid-19 pandemic triggered discussions about its potential impact on the future demand for office space and the risk it poses to the performance of office markets. Against this background, the goal of this paper is to investigate the link between working from home and the evolution of key indicators of office occupier markets across Europe over the past three decades. Based on the data from Eurostat and CBRE, the paper uses panel regression to investigate the temporal as well as cross-sectional relationships between the share of the workforce working from home and office rents and vacancy rates in major cities. The results are interesting in several ways. Firstly, changes in the share of employees working from home did not appear to have any significant impact on the evolution of rents or vacancy rates over time. However, occasional homeworking was significant in explaining cross-sectional differences in office market indicators. Moreover, contrary to the initial expectations, higher share of employees occasionally working from home appeared to be associated with stronger performance of the respective office market. As explanation, the paper proposes a hypothesis that this was due to working from home being only one aspect of broader changes in the office work environment and related socio-economic trends that had a net beneficial effect on office occupier markets. Although the results refer to historical developments and may not be fully applicable to the current context of the pandemic, they highlight the need to consider working from home in a broader perspective of office occupier trends and ways of working.

Office Rent Prediction based on the Influenced Features

This study applies a new approach in identifying the best Machine Learning model to predict office rent and determining the most significant factors influencing rental values. The Auto Model uses three (3) distinct types of Machine Learning algorithms, namely the Decision Tree, Random Forest, and Support Vector Machine. The Auto Model highlights that the Decision Tree outperformed Random Forest and Support Vector Machine for better prediction. The results of statistical analysis using Auto Model suggest that among the factors that influence office building rental, amenities, and in-house services show significant roles in the model. Keywords: Office Rent, Machine Learning, Prediction eISSN: 2398-4287 © 2022. The Authors. Published for AMER ABRA cE-Bs by e-International Publishing House, Ltd., UK. This is an open access article under the CC BYNC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians/Africans/Arabians) and cE-Bs (Centre for Environment-Behaviour Studies), Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia. DOI:

INFLUENCE FEATURES OF OFFICE BUILDING RENTAL: A SYSTEMATIC LITERATURE REVIEW

In reviewing rental trends, investors are unable to rely on market data from real estate transactions due to inaccurate property rental valuations by valuers. Hence the objective of this research which is to identify the influencing features of office building rentals. This study performs a systematic review on the influencing features of office building rentals based on the PRISMA systematic review and meta-analysis. The results obtained indicate that office rent determinants such as green labels, vacancy levels, and location-specifics, have significant impact on office rents. This paper provides new insights for investors and valuers in determining office rental values in the real estate market.