Determinants of Cap Rates in U.S. Office markets

Abstract

This study examines the determinants of office capitalization rates across three major U.S. cities: New York City, Chicago, and Los Angeles. Analyzing a sample of 1,804 office properties for the 2000 to 2013 time period, the findings suggest that the drivers of capitalization rates vary considerably across the three cities, even for comparable properties. These differences can hypothetically be beneficial for diversifying real estate portfolio investments. The results further demonstrate that capitalization rates are largely driven by local, as well as property-specific variables.