Which Factors Determine Transaction Activity across U.S. Metropolitan Office Markets?

Abstract

Variations in transaction activity between commercial real estate markets and over time are likely to have important implications for investment strategies and pricing. The authors investigate economic and real estate market factors that might drive such variations. Their article draws on data on trading volumes and turnover rates for 49 U.S. metropolitan statistical area office markets. Panel models are employed to determine which factors lead to higher or lower turnover over the 2002–2015 period. The results indicate positive associations between turnover rates and market size, economic growth, and occupancy rates. Meanwhile, higher capital market risks and transfer taxes are found to have a negative effect on turnover rates. The findings are economically plausible and robust to a variety of specifications, including different measures of turnover rates. It is also found that private investor transaction activity is less strongly affected by market fundamentals than institutional investor activity.