Publications

- November 2012: Vol. 24 No. 10

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Making the Connection: A Number of Variables Have to Come Together to Make a Modern City Work Effectively

by Richard Barkham and Maurizio Grilli

There is a great deal of variation in the prime or class A rents achieved in different cities across the world. The level of economic development, as measured by GDP or GDP per capita, is an important explanator, but it is by no means the only one. Many cities in advanced nations have relatively low rents given their size and economic output because of poor infrastructure and low standards of livability. The data that is now collected and published by international real estate consultants on prime rents at city level has begun to make it possible to describe and analyze the main reasons why rents vary between cities.

There is a wide literature on the determinants of rental values. These models are generally macroeconomic related or microeconomic related, according to which variables are used to explain rents. Macroeconomic-based models will look at factors such as consumption growth, unemployment growth, interest rates and new construction, and can be used for forecasting

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