August 1996, Vol 21, No 2

Abstract: The object of this article is to shed light on the extent and underlying determinants of inter-metropolitan differentials in office capitalization rates. The authors present a cross-sectional model which accounts for the partial adjustment of such rates and synthesizes both the direct income capitalization and the discounted cash flow approaches. Employing average capitalization rates across 43 office markets in 1995 and 1991, the subsequent estimation of this model yields intuitive results.