Institutional differences in european metropolitan commercial real estate markets

Abstract

The authors aim to extend previous literature on variations in returns across local office markets by examining the linkage of office and retail market dynamics to the institutional structure at the European metropolitan level. Previous literature suggests that return rates differ widely across local markets, substantiating the view that returns are intertwined with conditions at local level. Whether and to what degree differences in local markets relate to differences in institutions has not been addressed. This is the central issue of this chapter. The research design consists of three coherent steps to address the central issue. First, we address the issue of how institutions may determine differences in office and retail market dynamics. We use current contributions in literature, culminating in a concise review of literature on office and retail market behaviour and institutions. Second, we aim to measure the degree of differences in office and retail market returns. For this we use data across European metropolitan areas. Finally, we consider the interrelations between real estate markets and institutions to explain the observed differences. For this we model market returns now including the various institutional measures. These results indicate which and to what degree the various institutional measures explain observed differences in local commercial real estate market dynamics.