Empirical Research On The Return And Risk Of Shanghai Office Market

As the business and financial center of the second largest economy in the world, Shanghai has enjoyed a tremendous opportunity for developing in the past thirty years. Real estate is not only for satisfying human being’s demand for living, but also a kind of investment. Office, as one type of commercial real estate, is used by companies to supply a comfortable and relaxing work environment to their employees. Because of this utility, office could be regarded as a good investment for earning capital gain or rental income, but this kind of investment’s payback period is long and slow for most investors. Even though return is always high accompanied by risk, a rational investor won’t avoid or accepting all the risk during pursuing profit. In order to balance the risk and return, investor should be very familiar with the return and risk of one type of investment.This paper will firstly review the theory about the return and risk of direct investment in office. The return of office investment mainly comes from the market price appreciation and rental income. And in theory, the price and rent are affected by the demand, supply and inflation of an economy. The demand of office is influenced by macro economy, employment, monetary policy and etc. And the supply of office is influenced by the construction cost, financing costs of real estate developer and the supply of land.Second, this paper also applies the theory into Shanghai office market and conduct empirical research on the factors influencing the return for Shanghai office holders through quantitative analysis. From this study, we know the price of Shanghai office market is significantly affected by M2.Meanwhile, policy risk of direct office investment could be qualitatively analyzed. And this study also compares the correlation of variance of stock market return and return on office in Shanghai to compare the risk of these two kinds of investment.