Familiarity and the Determination of Yields for Regional Office Property Investments in the UK

Abstract

Henneberry J. and Mouzakis F. Familiarity and the determination of yields for regional office property investments in the UK, Regional Studies . This paper examines how effectively investment yields incorporate spatial variations in risks and returns into property prices. It is hypothesized that the pricing of property investments in non-core UK regions is affected by a pure familiarity heuristic adopted by investors based in London. Consequently, the determination of office yields is based not on the intrinsic investment characteristics of regional markets, but on a core market benchmark combined with a regional premium. This results in very long-term mispricing patterns with implications not just for the office property investment market, but also for the regions, especially those outside the core.