The Synchronisation of European Office Cycles

The idea of the European Union is to achieve greater harmonisation across member states through a common monetary policy, more trade in goods and services, freer capital markets and more labour market integration. These ingredients are expected to make the countries more similar with respect to the business cycle position they find themselves in. After all this is the prediction of Mundellís optimal currency area theory. This raises the question of whether the closer economic integration among European Union countries, at least in the sense of Mundellís theory, have resulted in more synchronised real estate cycles in the European Union. Higher degrees of real estate cycle synchronisation have notable portfolio implications. The most important one is that the synchronised markets are subject to common shocks and the response will be similar to international economic or financial market shocks. This paper provides empirical evidence on office cycle synchronisation in core European countries and assesses quantitatively the current state of office cycle synchronisation between countries (markets). The analysis goes a step further and compares the degree of synchronisation in the office cycles and business cycles in the selected core EU countries. The measures of synchronisation in this analysis are drawn from the relevant economics literature. The key tasks to assess synchronisation in this paper are: testing the significance and time invariance of rolling correlation coefficients, computing cyclical indices, estimating persistence and calculating impulse response functions.