A non-parametric CAE approach to office rents: Identification of Helsinki metropolitan area submarkets

The study attempts to identify and estimate the office rents of submarkets in the Helsinki metropolitan area. We applied a non-parametric empirical approach called the CAE method to identify six parameters: highway APD (access point distance), car traffic density, light rail APD, main retail distance, office building density and effective age. Our results suggest that car traffic density is the single most influential parameter. Office rent decreases with effective age and increases with the density of office buildings. Longer distances to highway access points and to the main retail centres decrease office rents, while shorter distances to the light rail access points increase office rents in general and particularly for locations close to highway access points. We identified local peaks by inspecting multiple graphs. The local peaks were considered evidence for the existence of commercial office submarkets within the Helsinki metropolitan area. We identified seven submarkets at different rent levels. Interpreting submarkets from the CAE graphs allowed us to recognise particular business districts in the Helsinki metropolitan area. In addition, it is of great significance that the roles of the given and estimated variables can be exchanged. The method is directly applicable in real estate studies using adapted database and prescribed smoothing parameters.