International variation in office yields: a panel approach

Purpose – The outlook for investment yields is one of the key uncertainties facing the real estate investor at any time. By examining the relationship of yields to other factors across a large number of office markets, in many countries, over five years, the paper aims to establish relationships with important explanatory factors. Design/methodology/approach – The paper uses a panel estimation to pick up both the relationship between yields and the explanatory variables both in different locations and at different times. By using both a time and location dimension it is thought that a “truer” generic relationship can be estimated. Using this method aggregates all the available information simultaneously to establish the relationship between office yields and explanatory variables. Findings – The results show that: locations with higher short‐term interest rates will on average have higher yields; liquid markets tend to have lower yields and similarly, transparent markets and markets with longer leases have lower yields. Originality/value – As well as the practical applications of this analysis, it makes an academic contribution as yields remain poorly understood and most studies examine time series data in only one country. This international study is the fist of its kind.