Investigating the Yield Rate of Office Real Estate in Oslo : A Vector Error Correction Approach

Abstract

The yield rate of office real estate is little researched, yet it is an important figure for measuring rate of return. In this thesis, the drivers of the yield rate of office real estate in Oslo, Norway, has been investigated through the use of several relevant factors. Using the Johansen framework for cointegration to determine the existence of long term relationships, we construct a vector error correction model to analyse the effects of both real estate factors and macroeconomic factors. This enables the possibility of investigating both short term and long term drivers. We asses the effect of monetary supply, real rate, consumer expectation and office supply on yield, based on Nowaks (2021) model for the yield office rate in Warsaw, Poland. We also construct an alternative model, using gdp, real rate and office supply. Both models suggest a return to a long term equilibrium yield. The findings establish a connection of the real rate, consumer expectations, M2 and office supply to long run yield. In the short term, M2, consumer expectation and real rate are significant in explaining movements in the yield rate. The results do not indicate any significant effect due to the growth in GDP. We also find evidence of structural breaks in the yield rate, both from 2015, and from Ql 2020. Overall, our findings are in line with similar research conducted in other cities.