Foreign investors’ influence on the real estate market capitalization rate – evidence from a small open economy

Oikarinen, Elias; Falkenbach, Heidi

doi:10.1080/00036846.2016.1254343

Cited by 12 publications

(19 citation statements)

References 32 publications

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“…They also found a statistically significant positive coefficient for country risk (measured as the difference between the yield on US government bonds and local government bonds) on cap rates. In a study of the impact of international investors on cap rates, Oikarinen and Falkenbach (2017) found expected positive relationships between cap rates and bond yields and vacancy rates.…”

Section: Background and Contextmentioning

confidence: 99%

Capitalization rates and transaction activity in international office markets: A global perspective

Devaney

Livingstone²,

McAllister

et al. 2019

Global Finance Journal

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Based on a sample of office markets in 33 cities across 16 countries for the period 2007-2015, this paper explores variations in commercial real estate transaction activity and asset pricing in international office markets. It is argued that there are complex interactions and feedback relationships between asset prices, transaction activity, market conditions and local institutional structures in real estate markets. Commercial real estate pricing is modelled using data on capitalization rates. The relationships found are consistent with previous research in terms of the importance of drivers such as government bond yields, yield spreads and real estate rents. Consistent with information network effects, it is also found that larger and more mature markets tend to have lower cap rates and, thus, higher asset prices. The results for transaction activity are less clear cut. Results from econometric analysis of turnover rates suggest that the same explanatory factors do not determine transaction activity to the same extent as cap rates. When purged of possible joint determinants, there is no evidence to support the view that cap rates affect market turnover rates or that turnover rates affect cap rates.

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Section: Background and Contextmentioning

confidence: 99%

Capitalization rates and transaction activity in international office markets: A global perspective

Devaney

Livingstone²,

McAllister

et al. 2019

Global Finance Journal

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“…Because real estate markets are prone to timely delayed effects, we estimate lagged terms up to four quarters for each included covariate (k = 4). Some authors have addressed the influence of transaction activity on cap rates McAllister and Nanda (2016a) and Oikarinen and Falkenbach (2017) who ran their econometric analysis as differently to our procedure). Accordingly, we check our data sample by first carrying out a Granger causality test to evaluate a potentially inverse relationship between the dependent and the target variables.…”

Section: Methodsmentioning

confidence: 99%

“…To the best of the authors' knowledge, only a little research has investigated the cap rate, or related initial yields and investment flow relationship, even though a direct relationship between both seems reasonable. With respect to foreign investment, McAllister and Nanda (2016a) and Oikarinen and Falkenbach (2017) detected that foreign capital decreases cap rates. For the present study, the subsequent question of whether the reverse relationship holds true and that cap rates impact investment activity has barely been analyzed.…”

Section: Cross-border Investorsmentioning

confidence: 99%

Do cross-border investors benchmark commercial real estate markets?

Oertel

Willwersch

Cajias³

2020

JERER

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Purpose The purpose of this study is to introduce a new perspective on determinants of cross-border investments in commercial real estate, namely, the relative attractiveness of a target market. So far, the literature has analyzed only absolute measures of investment attractiveness as determinants of cross-border investment flows. Design/methodology/approach The empirical study uses a classic ordinary least squares estimation for a European panel data set containing 28 cities in 18 countries, with quarterly observations from Q1/2008 to Q3/2018. After controlling for empirically proven explanatory covariates, the model is extended by the new relative measurement based on relative yields/cap rates and relative risk premia. Additionally, the study applies a generalized additive mixed model (GAMM) to investigate a potentially nonlinear relationship. Findings The study finds on average a ceteris paribus, statistically significant lagged influence of the proxy for relative attractiveness. Nonetheless, a differentiation is needed; relative risk premia are statistically significant, whereas relative yields are not. Moreover, the GAMM confirms a nonlinear relationship for relative risk premia and cross-border transaction volumes. Practical implications The results are of interest for both academia and market participants as a means of explaining cross-border capital flows. The existing knowledge on determinants is expanded by relative market attractiveness, as well as an awareness of nonlinear relationships. Both insights help to comprehend the underlying transaction dynamics in commercial real estate markets. Originality/value Whereas the existing body of literature focuses on absolute attractiveness to explain cross-border transaction activity, this study introduces relative attractiveness as an explanatory variable.

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“…Variations in crossborder investment across the cities were noted. Meanwhile, Oikarinen and Falkenbach (2017) analyzed cap rates for the Helsinki prime office market to explore the impact of changes in foreign investor activity. They found that a 10% increase in foreign investment corresponded with a c. 30 basis point drop in cap rates as well.…”

Section: Literature Reviewmentioning

confidence: 99%

Only the Best? Exploring Cross-Border Investor Preferences in US Gateway Cities

Devaney

Scofield

Zhang

2018

J Real Estate Finan Econ

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Despite heady growth in cross-border investment into commercial real estate over recent decades, there are few studies that examine differences in investment preferences between domestic and cross-border investors at a micro level. We address the gap by examining the characteristics of assets acquired by cross border investors in six major US metro areas, comparing them with the purchases made by US investors in those same areas. Our study uses data on more than 67,500 transactions recorded by Real Capital Analytics (RCA) over the period from Q1 2003 to Q3 2016. As well as examining cross-border investors in aggregate, we isolate and examine purchases by investors from each of the four principal source nations for cross-border real estate investment in these cities. This is important since treating cross-border investors as a single group may obscure important differences between them. We employ multilevel logit techniques and we find across a number of specifications that cross-border investors prefer larger assets, newer assets and CBD locations regardless of nationality. However, temporal and sectoral patterns of investment, as well as evidence for return chasing behavior, vary with the nationality of investor being studied. Keywords Commercial real estate. Cross-border investment. Foreign investment. Investor preferences. Multilevel modelling. Return chasing behavior

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Foreign investors’ influence on the real estate market capitalization rate – evidence from a small open economy

Cited by 12 publications

References 32 publications

Capitalization rates and transaction activity in international office markets: A global perspective

Capitalization rates and transaction activity in international office markets: A global perspective

Do cross-border investors benchmark commercial real estate markets?

Only the Best? Exploring Cross-Border Investor Preferences in US Gateway Cities

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