Flight to Quality? An Investigation of Changing Price Spreads in Commercial Real Estate Markets

Abstract

This paper uses sales transaction data in order to examine whether flight from risk phenomena took place in the US office market during the financial crisis of 2007- 2009. The effect of the crisis on the pricing of asset quality attributes is investigated. Hedonic regression procedures are used to test the hypothesis that the spread between the pricing of low quality and high quality characteristics increased during the crisis period compared to the pre-crisis period. The results of the hedonic regression models suggest that the price spread between Class A and other properties grew significantly during the downturn.