The COVID-19 Sentiment and Office Markets: Evidence from China

Abstract

This study examines the impact of COVID-19 sentiment on office building rents and vacancy rates in China with a COVID-19 sentiment index constructed based on Baidu search queries on COVID-19-related keywords. We analyzed the data of office buildings and economic data from 2013 Q3 to 2022 Q2 in seven major Chinese cities with a two-stage Error Correction Model framework. We found that a heightened level of COVID-19 sentiment significantly and adversely affects the Chinese office buildings market. Specifically, office building rents decrease more than 8% if a city is exposed to an increase of one unit of COVID-19 sentiment for an entire quarter. The interaction terms model further reveals that the COVID-19 sentiment has a more substantial impact on office building rents where office vacancy is higher, reflecting an asymmetric effect. The findings here support the fear sentiment hypothesis. The findings suggest that a heightened level of investors’ COVID-19 sentiment resulted in a deterioration of office rents, reinforcing the role of investors’ sentiment in the pricing of office buildings. The findings suggest that investors should consider investor sentiment, particularly COVID-19 sentiment, in their decision-making.