The Persistence of Distance: A Gravity Model of European Cross-Border Real Estate Development Flows

Abstract

This paper investigates the scale and drivers of cross-border real estate development in western Europe and central and eastern Europe. Placing cross-border real estate development within the framework of foreign direct investment, conceptual complexities in characterizing the notional real estate developer are emphasized. Drawing upon a transaction database, we find that western European markets tend to be dominated by domestic real estate developers. Much higher levels of market penetration by international real estate developers are found in the less mature markets of central and eastern Europe. We apply a range of gravity modeling approaches to investigate determinants of volume of development flows. Empirical modeling based a number of specifications revealed the importance of size of the economies, distance between countries and differences in capital market depth as significant determinants of cross-border real estate development flows.

Keywords: Real Estate development, Cross-border flows, Gravity model, Poisson Regression

JEL Classification: F14, O19, R12, C31