The variation of capitalization rates across submarkets within the same metropolitan area

Abstract

This paper investigates the variation of capitalization rates across submarkets within the same metropolitan area by using a database with 73 transactions of office properties located in nine submarkets of Atlanta during the period from the third quarter of 2000 to the second quarter of 2003. The results show that capitalization rates are quite predictable at the submarket level. Movements of capitalization rates are shaped by local market information, national capital market information and characteristics of individual property. The study also examines the behavior of real estate investors in forming their expectations of future income streams. A cross-sectional model with time dummy variables is used in this paper.