Empirical Essays on Office Market Dynamics Defended on Thursday, 23 October 2008

Office buildings are a major investment vehicle, provide a working environment for numerous employees across the globe and determine the skyline of major cities. Put differently: office buildings matter. This dissertation consists of six studies and focuses on office buildings from a broad, but always financial, perspective. The first study examines the effect of implications embedded in real option theory on office construction decisions by exploring the Singapore and Hong Kong office markets. In line with the predictions of real option models, we show that the effects of real interest rate and the expected demand growth on the hurdle rent become more negative when the market volatility is greater. The second study shows a model for measuring the effect of clustering of office space on rents. The results, based on the Amsterdam office market, show that office rents are higher in denser office areas. Our longitudinal data show that this effect is present irrespective of the phase of the office market cycle. The third study examines the relation between urban density and financial performance for a sample of Dutch firms. The analysis indicates that firms in densely populated areas have lower return on assets when compared to their counterparts in more rural areas. The following two studies examine office rent determinants in Europe and the United States respectively by applying two-stage error-correction-models. In contradiction to expectations based on U.S. office market research, we show that the use of local data does not significantly improve rent models in a study of ten European cities. For a panel of fifteen major office markets in the U.S. the results presented in the following chapter of this dissertation show that office rents react significantly stronger to positive changes in office employment when vacancy rates are relatively low. The final study shows the relation between direct and indirect office investment styles. Results indicate that the two formats are integrated over longer time periods, but can behave very differently over short time intervals.

Keywords

office markets, real options, office construction, rent determinants, office clustering, spatial equilibrium, direct and indirect real estate investments