Office Rent Determinants: A Hedonic Panel Analysis

Fuerst, Franz (2007): Office Rent Determinants: A Hedonic Panel Analysis.

Abstract

It has been frequently observed that office markets are subject to particularly high fluctuations in rents and vacancy levels, thus exposing real estate investors to considerable risk regarding expected future income streams. This paper analyzes the determinants of office rents and their variability over time and across sub-markets of a city using empirical data from New York City to gain additional insight into the rent price formation and its stability across space and over time.

• Item Type: MPRA Paper
• Language: English
• Keywords: Real estate, office market, hedonic analysis, panel analysis, market fragmentation, efficient markets, spatiotemporal models
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R33 - Nonagricultural and Nonresidential Real Estate Markets

References

ARCHER, W. R. (1997): The Nature of Office Market Heterogeneity: Empirical Evidence and Implications for Market Forecasting. RERI Working Paper No. 62.

ARCHER, W. R.; SMITH, M. T. (2003): Explaining Location Patterns of Suburban Offices. Real Estate Economics. 31:2, 139-164.

ARELLANO, M. (2003): Panel data econometrics. Oxford University Press. Oxford.

ARELLANO, M.; BOND, S. (1991): Some tests of specification for panel data. Review of Economic Studies. 58, 277-297.

ARELLANO, M.; BOVER, O. (1995): Another Look at the Instrumental Variable Estimation of Error Component Models. Journal of Econometrics. 68: 29-51.

ARTIS, M.; KONTOLEMIS, Z.; OSBORNE, D. (1997): Business Cycles for G7 and European countries. The Journal of Business. 70, 249-279.

BOLLINGER, C.R.; IHLANFELDT, K.R.; BOWES, D.R. (1998): Spatial Variations in Office Rents in the Atlanta Region. Urban Studies. 35:7, 1097-1118.

CAN, A. (1996): Specification and estimation of hedonic housing price models. Regional Science and Urban Economics. 22, 453-474. 45

CAN, A.; MEGBOLUGBE, I. (1997): Spatial Dependence and House Price Index Construction. Journal of Real Estate Finance and Economics. 14: 203-222.

CASETTI, E. (1997): The Expansion Method, Mathematical Modeling, and Spatial Econometrics. International Regional Science Review. 20, 9-33.

CERVERO, R.; DUNCAN, M. (2002): Transit’s Value Added: Effects of Light Commercial Rail Services on Commercial Land Values. Paper presented at the 2002 TRB Annual Meeting.

CHOW, G. (1960): Tests of Equality Between Sets of Coefficients in Two Linear Regressions. Econometrica, 28:3, 591-605.

CLAPP, J. M. (1980): The Intrametropolitan Location of Office Activities. Journal of Regional Science. 20, 387-399.

CLAPP, J. M. (1993): The Dynamics of Office Markets. Washington: Urban Institute Press.

CLAPP, J. M. (2003). A Semiparametric Method of Valuing Residential Locations: Application to Automated Valuation. Journal of Real Estate Finance and Economics. 27:3, 303-320.

CLAPP, J. M. (2004). A Semiparametric Method for Estimating Local House Price Indices. Real Estate Economics. 32:1, 127-160.

COSTAR (2007): The CoStar Office Report – Mid-year 2007. New York City Office Market. Research report.

DES ROSIERS, F.; THERIAULT, M.; VILLENEUVE, P.-Y. (2000): Sorting Out Access and Neighbourhood Factors in Hedonic Price Modelling. Journal of Property Investment and Finance. 18:3, 291-315.

DIPASQUALE, D.; WHEATON, W. (1996): Urban Economics and Real Estate Markets. Englewood Cliffs, NJ: Prentice Hall.

DOLDE, W.; D. TIRTIROGLU (1997): Temporal and Spatial Information Diffusion in Real Estate Price Changes and Variances. Real Estate Economics, 25:4, 539-565.

DUNSE, N; LEISHMAN, C; WATKINS, C. (2002): Testing the Existence of Office Submarkets: A Comparison of Evidence from Two Cities. Urban Studies, 39, 483-506.

EVANS, A. (1995): The Property Market: Ninety Nine Per Cent Efficient? Urban Studies, 32, 5-29.

GAT, D. (1998): Urban Focal Points and Design Quality Influence Rents: The Tel Aviv Office Market. Journal of Real Estate Research. 16:2, 229-247. 46

GLASCOCK, J. L.; KIM, M.; SIRMANS, C. F. (1993): An Analysis of Office Market Rents: Parameter Constancy and Unobservable Variables. Journal of Real Estate Research. 8:4, 625-38.

GRUBB & ELLIS (1992-2006): NYC's office market data. New York.

HANINK, D. M. (1997): The Integration of Intrametropolitan Office Markets. Environment and Planning A, 29, 391-404.

HO, D.; NEWELL, G.;WALKER, A. (2005): The importance of property-specific attributes in assessing CBD office building quality. Journal of Property Investment and Finance, 23:5, 424-444.

HSIAO, C. (2003): Analysis of Panel Data. 2nd edition. Cambridge University Press,

HULTEN, C. R. (2003): Price Hedonics: A Critical Review. FRBNY Policy Review, September 2003.

IHLANFELDT, K. R. (1990): The Intrametropolitan Location of New Office Firms. Land Economics. 66, 182-198.

KRYSTALOGIANNI, A.; MATYSIAK, G.A.; TSOLACOS, S. (2004): Forecasting UK Commercial Real Estate Cycle Phases with Leading Indicators: A Probit Approach. Applied Economics, 36(20), 2004, 2347-2356.

MILLS, E. S. (1990): Do Metropolitan Areas Mean Anything? A Research Note. Journal of Regional Science. 30, 415-419.

MILLS, E.S. (1992): Office Rent Determinants in the Chicago Area. Journal of the American Real Estate and Urban Economics Association. 20:2, 273-87.

MINTZ, I. (1969): Dating postwar business cycles: Methods, and their application to Western Germany, 1950-1967. Occasional Paper No. 107, National Bureau of Economic Research.

MOUROUZI-SIVITANIDOU, R. (2002): Office Rent Processes: The Case of U.S. Metropolitan Markets. Real Estate Economics. 30:2, 317-344.

MUELLER, G. R. (1999): Real Estate Rental Growth Rates at Different Points in the Market Cycle. Journal of Real Estate Research. 18:1, 131-150.

ROSEN, K. T. (1984): Toward a Model of the Office Building Sector. Journal of the American Real Estate and Urban Economics Association. 12, 261-269.

ROSENTHAL, S.; STRANGE, W. (2001): The Determinants of Agglomeration. Journal of Urban Economics. 50:2, 191-229. 47

SCHWARTZ, A. (1992): The Geography of Corporate Services: A Case Study of the New York Urban Region. Urban Geography. 13, 1-24.

SHILTON, L.; STANLEY, C. (1999): Spatial Patterns of Headquarters. Journal of Real Estate Research, 17:3, 341-364.

SHILTON, L.; ZACCARIA, A. (1994): The Avenue Effect, Landmark Externalities, and Cubic Transformation: Manhattan Office Valuation. Journal of Real Estate Finance and Economics, 8:2, 151-65.

SIRMANS, C.F.; GUIDRY, K.A. (1993): The Determinants of Shopping Center Rents. Journal of Real Estate Research, 8, 107-115.

SIRMANS, G.S.; SIRMANS; C.F.; BENJAMIN, J. (1989): Determining Apartment Rent: The Value of Amenities, Services and External Factors. Journal of Real Estate Research, 4, 33-43.

SIVITANIDOU, R. (1995): Urban Spatial Variation in Office-Commercial Rents: The Role of Spatial Amenities and Commercial Zoning. Journal of Urban Economics. 38, 23-49.

SIVITANIDOU, R. (1996): Do Office-Commercial Firms Value Access to Service Employment Centers? A Hedonic Value Analysis within Polycentric Los Angeles. Journal of Urban Economics. 40, 125-149.

SLADE, B.A. (2000): Office Rent Determinants during Market Decline and Recovery. Journal of Real Estate Research. 20:3, 357-380.