The Real Estate Conundrum in the CEE Office Markets: Thinking Too Big?

Frederic Laurin (), John-John D'Argensio () and Thea Goginashvili ()
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Frederic Laurin: Universite du Quebec a Trois-Rivieres
John-John D'Argensio: SITQ - Caisse de depot et placement du Quebec
Thea Goginashvili: International School of Economics at Tbilisi State University

No 10-001, Working Papers from International School of Economics at TSU, Tbilisi, Republic of Georgia

Abstract: In this paper, we investigate the evolution of office market risks and property prices in Central and Eastern European (CEE) cities. We developed a methodology assessing if office property markets have been accurately valuated in CEE cities, using as a benchmark the past evolution of office markets in Western European cities. Using regression methods applied on Western European data, we are able to estimate a predicted property price and capitalization rate for each CEE cites, given their respective actual real estate and economic conditions. Results show that investors' valuations are in fact not too far apart from the predicted value based only on real estate and economic fundamentals. We also find that the macroeconomic environment and the general risk assessment seem to have a stronger effect on property prices in CEE than in Western European cities.

Pages: 37 pages
Date: 2010-06
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