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Analysis on the Determinants of the Cap Rate in Seoul Office Market using the Vector Error Correction Model

  • Korea Real Estate Review
  • 2010, 20(2), pp.133-152
  • Publisher : korea real estate research institute
  • Research Area : Social Science > Law > Law of Special Parts > Law of Real Estate

Lee, Su-Jeong 1 Joo Hyun Cho 1

1건국대학교

Accredited

ABSTRACT

The capitalization rate(Cap Rate) is used as the investment indicator of the institutional investors needed in making a reasonable investment decision and is a meaningful indicator to the real estate market. Recently, foreign studies have shown that the capital market has tended to have a gradually increasing effect on the Cap Rate of the office building. This study includes theoretical investigation of the Cap Rate as well as analyzing what effect the macroeconomic factors of the capital market had on it. And it attempted to analyze the Cap Rate determinants of the Seoul office market using the Vector Error Correction Model. As a result, it was found that the Cap Rate was influenced by the corporate bond, one of macroeconomic variables, and by office supply, those of the variables related to real estate market. The Cap Rate spread is a deduction of the risk-free rate from the Cap Rate and influenced by KOSPI as one of macroeconomic variables, and office supply as one of the variables related to real estate market. The results of variance decomposition showed that both the Cap Rate and the Cap Rate spread had the absolutely high explanatory power of such macroeconomic variables as KOSPI and corporate bond than real estate market related variables. This result shows that the Cap Rate of the Seoul office market had the phenomenon of synchronizing with the capital market.

Citation status

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