Office capitalization rates: Real estate and capital market influences

Focusing on the office capitalization rate, the central objective of this paper is to shed light on two sets of issues that have not yet been fully researched. The first involves the importance of its local-fixed and time-variant components and the significance of persistence in its time trends. The second centers on the relative importance of local office markets vis-a-vis the national capital market in shaping its various components. Extensive econometric analysis of capitalization rate series employed to address these issues highlights the existence of both local-fixed and time-variant effects, while indicating differential persistence of time trends across markets. Moreover, such analysis uncovers the pivotal role of specific local office market traits and the lesser role of national capital market features in determining office capitalization rate variations. Such findings on the role of local influences may provide a richer foundation for asset valuation and investment practices. [PUBLICATION ABSTRACT]