RICS: Investor rationality: evidence from UK capitalization rates

Published April 2005

Recent analyses have suggested the irrationality of Australian and US office property investors in that they have failed to raise capitalisation rates sufficiently at rental cyclical peaks to account for the obvious mean reversion in real rents and thus have significantly overvalued properties. In this paper, we present a model of capitalization rates and explain UK office and retail cap rates in an error correction framework.

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