Capital Market Expectations and the London Office Market

Simon Stevenson and James Young ()
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James Young: University of Auckland

Real Estate & Planning Working Papers from Henley Business School, University of Reading

Abstract: 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.

Pages: 26 pages
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rdg:repxwp:rep-wp2011-09

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