To read this content please select one of the options below:

Cap rates and risk: a spatial analysis of commercial real estate

Florian Unbehaun (Department of Land Economy, University of Cambridge, Cambridge, UK)
Franz Fuerst (Department of Land Economy, University of Cambridge, Cambridge, UK and University of Melbourne, Melbourne, Australia)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 5 March 2018




This study aims to assess the impact of location on capitalization rates and risk premia.


Using a transaction-based data series for the five largest office markets in Germany from 2005 to 2015, regression analysis is performed to account for a large set of asset-level drivers such as location, age and size and time-varying macro-level drivers.


Location is found to be a key determinant of cap rates and risk premia. CBD locations are found to attract lower cap rates and lower risk premia in three of the five largest markets in Germany. Interestingly, this effect is not found in the non-CBD locations of these markets, suggesting that the lower perceived risk associated with these large markets is restricted to a relatively small area within these markets that are reputed to be safe investments.

Research limitations/implications

The findings imply that investors view properties in peripheral urban locations as imperfect substitutes for CBD properties. Further analysis also shows that these risk premia are not uniformly applied across real estate asset types. The CBD risk effect is particularly pronounced for office and retail assets, apparently considered “prime” investments within the central locations.


This is one of the first empirical studies of the risk implications of peripheral commercial real estate locations. It is also one of the first large-scale cap rate analyses of the German commercial real estate market. The results demonstrate that risk perceptions of investors have a distinct spatial dimension.



The authors are grateful for valuable comments and suggestions from the editor of this journal and from anonymous referees, which helped improve the quality of this paper. Acknowledgments are also due to RCA whose data sets were used in the empirical analysis. Franz Fuerst acknowledges the continuous support of the Cambridge University Land Society (CULS).


Unbehaun, F. and Fuerst, F. (2018), "Cap rates and risk: a spatial analysis of commercial real estate", Studies in Economics and Finance, Vol. 35 No. 1, pp. 25-43.



Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

Related articles