NY-LON: Does a Single Cross-Continental Office Market Exist?

Abstract

Executive Summary.The links across and comovements between the New York City and London office markets are examined in the context of similarities in both the underlying economic specialization of the two cities and their positions as two of the most liquid international office markets. The results reveal strong linkages in the total returns between the two markets. While there is a lack of significant cointegration and causality results with regard to the rental markets, there are similarities in the underlying driving forces. The results indicate that investment behavior contributes more to their commonality than do underlying economic forces. Further, the role of the stock market in the performance of both real estate markets is highlighted. The paper draws on the findings to highlight the potential trade-off that investors face between diversification and liquidity in international office markets.