Long run relationships between City office rents and the economy in the UK: creating a database for research

This paper sets out progress during the first eighteen months of doctoral research into the City of London office market. The overall aim of the research is to explore relationships between office rents and the economy in the UK over the last 150 years. To do this, a database of lettings has been created from which a long run index of City office rents can be constructed. With this index, it should then be possible to analyse trends in rents and relationships with their long run determinants. The focus of this paper is on the creation of the rent database. First, it considers the existing secondary sources of long run rental data for the UK. This highlights a lack of information for years prior to 1970 and the need for primary data collection if earlier periods are to be studied. The paper then discusses the selection of the City of London and of the time period chosen for research. After this, it describes how a dataset covering the period 1860-1960 has been assembled using the records of property companies active in the City office market. It is hoped that, if successful, this research will contribute to existing knowledge on the long run characteristics of commercial real estate. In particular, it should add a price dimension (rents) to the existing long run information on stock/supply and investment. Hence, it should enable a more complete picture of the development and performance of commercial real estate through time to be gained.

Trends in office rents in the City of London: 1867-1959

This paper details the construction and analysis of a dataset of office lettings, which is used to produce a rent index for the City of London spanning the late nineteenth and early twentieth centuries. It advances prior research through application of a modern version of the repeat measures technique and in coverage of years where office rents have not been previously measured. Results show that there has been no real growth in rents over the period as a whole. However, there have been distinct phases of rental growth and decline that correspond with the wider economic fortunes of the City.

Office rent determinants: a hedonic panel analysis

It has been frequently observed that office markets are subject to particularly high fluctuations in rents and vacancy levels, thus exposing real estate investors to considerable risk regarding expected future income streams. This paper analyzes the determinants of office rents and their variability over time and across sub-markets to gain insight into the rent price formation and its stability across space and over time. No support is found for the single-market hypothesis which states that arbitrage opportunities effectively align real estate pricing schemes in various parts of city. Instead, the results suggest that the importance of hedonic pricing factors varies both over time and across submarkets.

International financial centres, office market rents and volatility

Despite continuing developments in information technology and the growing economic significance of the emerging Eastern European, South American and Asian economies, international financial activity remains strongly concentrated in a relatively small number of international financial centres. That concentration of financial activity requires a critical mass of office occupation and creates demand for high specification, high cost space. The demand for that space is increasingly linked to the fortunes of global capital markets. That linkage has been emphasised by developments in real estate markets, notably the development of global real estate investment, innovation in property investment vehicles and the growth of debt securitisation. The resultant interlinking of occupier, asset, debt and development markets within and across global financial centres is a source of potential volatility and risk. The paper sets out a broad conceptual model of the linkages and their implications for systemic market risk and presents preliminary empirical results that provide support for the model proposed.

Data dilemmas in forecasting European office market rents

This paper uses data provided by three major real estate advisory firms to investigate the level and pattern of variation in the measurement of historic real estate rental values for the main European office centres. The paper assesses the extent to which the data providing organizations agree on historic market performance in terms of returns, risk and timing and examines the relationship between market maturity and agreement. The analysis suggests that at the aggregate level and for many markets, there is substantial agreement on direction, quantity and timing of market change. However, there is substantial variability in the level of agreement among cities. The paper also assesses whether the different data sets produce different explanatory models and market forecast. It is concluded that, although disagreement on the direction of market change is high for many market, the different data sets often produce similar explanatory models and predict similar relative performance.

Capital market expectations and the London office market

The analysis of office market dynamics has generally concentrated on the impact of underlying fundamental demand and supply variables. This paper takes a slightly different approach to many previous examinations of rental dynamics. Within a Vector-Error-Correction framework the empirical analysis concentrates upon the impact of economic and financial variables on rents in the City of London and West End of London office markets. The impulse response and variance decomposition reveal that while lagged rental values and key demand drivers play a highly important role in the dynamics of rents, financial variables are also influential. Stock market performance not only influences the City of London market but also the West End, whilst the default spread plays an important role in recent years. It is argued that both series incorporate expectations about future economic performance and that this is the basis of their influence upon rental values.

Is intrinsic energy efficiency reflected in the pricing of office leases?

This paper investigates whether the intrinsic energy efficiency rating of an office building has a significant impact on its rental value. A sample of 817 transactions for offices with Energy Performance Certificates (EPCs) in the UK is used to assess whether a pricing differential can be identified, depending on the energy rating. While previous analyses of this topic have typically relied on appraisal-based and/or asking rent data, the dataset used in this research contains actual contract rents as well as information on lease terms. The results indicate a significant rental premium for energy-efficient buildings. However, it is found that this premium appears to be mainly driven by the youngest cohort of state-of-the-art energy-efficient buildings. The results also show that tenants of more energy-efficient buildings tend to pay a lower service charge, but this link appears to be rather weak and limited to newer buildings. Hence, it is argued that the information contained in the EPC is still not fully taken into account in the UK commercial property market with the possible exception of both the highest and the lowest EPC ratings.

Evaluation of the Met Office global forecast model using Geostationary Earth Radiation Budget (GERB) data

Simulations of the top-of-atmosphere radiative-energy budget from the Met Office global numerical weather-prediction model are evaluated using new data from the Geostationary Earth Radiation Budget (GERB) instrument on board the Meteosat-8 satellite. Systematic discrepancies between the model simulations and GERB measurements greater than 20 Wm-2 in outgoing long-wave radiation (OLR) and greater than 60 Wm-2 in reflected short-wave radiation (RSR) are identified over the period April-September 2006 using 12 UTC data. Convective cloud over equatorial Africa is spatially less organized and less reflective than in the GERB data. This bias depends strongly on convective-cloud cover, which is highly sensitive to changes in the model convective parametrization. Underestimates in model OLR over the Gulf of Guinea coincide with unrealistic southerly cloud outflow from convective centres to the north. Large overestimates in model RSR over the subtropical ocean, greater than 50 Wm-2 at 12 UTC, are explained by unrealistic radiative properties of low-level cloud relating to overestimation of cloud liquid water compared with independent satellite measurements. The results of this analysis contribute to the development and improvement of parametrizations in the global forecast model.

Habituation and dishabituation to speech and office noise

The authors examined whether background noise can be habituated to in the laboratory by using memory for prose tasks in 3 experiments. Experiment 1 showed that background speech can be habituated to after 20 min exposure and that meaning and repetition had no effect on the degree of habituation seen. Experiment 2 showed that office noise without speech can also be habituated to. Finally, Experiment 3 showed that a 5-min period of quiet, but not a change in voice, was sufficient to partially restore the disruptive effects of the background noise previously habituated to. These results are interpreted in light of current theories regarding the effects of background noise and habituation; practical implications for office planning are discussed.

The development of a new dust uplift scheme in the Met Office Unified Model

Aeolian mineral dust aerosol is an important consideration in the Earth's radiation budget as well as a source of nutrients to oceanic and land biota. The modelling of aeolian mineral dust has been improving consistently despite the relatively sparse observations to constrain them. This study documents the development of a new dust emissions scheme in the Met Office Unified ModelTM (MetUM) based on the Dust Entrainment and Deposition (DEAD) module. Four separate case studies are used to test and constrain the model output. Initial testing was undertaken on a large dust event over North Africa in March 2006 with the model constrained using AERONET data. The second case study involved testing the capability of the model to represent dust events in the Middle East without being re-tuned from the March 2006 case in the Sahara. While the model is unable to capture some of the daytime variation in AERONET AOD there is good agreement between the model and observed dust events. In the final two case studies new observations from in situ aircraft data during the Dust Outflow and Deposition to the Ocean (DODO) campaigns in February and August 2006 were used. These recent observations provided further data on dust size distributions and vertical profiles to constrain the model. The modelled DODO cases were also compared to AERONET data to make sure the radiative properties of the dust were comparable to observations. Copyright © 2009 Royal Meteorological Society and Crown Copyright