MODELLING EFFECTIVE OFFICE RENTS ACROSS EUROPEAN MARKETS

Prime office rents are often criticized for lack of responsiveness to market pressures. Recent papers have sought to explain the asymmetric nature of rental movements in central London office markets with models designed to exploit asymmetric movements. This type of rental movement is usually the result of incentivisation in the form of rent free periods. Rent free periods along with other less common forms of incentive, with the UK being the most prominent case, are becoming more common across Europe. Many European markets are implementing increased incentives in the face of falling rents and values. In this paper we examine the significance of rent free periods in creating asymmetrical rental movements by examining several markets across Western Europe with a focus on central London offices. We are seeking to explain the impact of incentives on effective prime rents in terms of volatility and value protection.