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Low Interest Rates and Uncreative Destruction in the Office Market

Author

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  • Olszewski Krzysztof

    (Warsaw School of Economics, al. Niepodległości 162, 02-554 Warszawa, Poland; Narodowy Bank Polski, ul. Świętokrzyska 11/21; 00-919 Warszawa, Poland)

  • Trojanowski Dariusz

    (University of Gdańsk, ul. Jana Bażyńskiego 8, 80-309 Gdańsk, Poland)

  • Łaszek Jacek

    (Warsaw School of Economics, al. Niepodległości 162, 02-554 Warszawa, Poland; Narodowy Bank Polski, ul. Świętokrzyska 11/21; 00-919 Warszawa, Poland)

Abstract

Low interest rates were introduced in the global economy to support the weak economic growth that followed the global financial crisis. In the real estate sector, low interest rates usually lead to a boom in investment and prices. This boom, however, is not spread throughout the economy, but rather concentrated in major cities. We demonstrate this phenomenon on the example of the office market in Warsaw (Poland). While it would be beneficial for the Polish economy to develop office space in smaller cities that have an insufficient supply of modern office space, investors have focused mainly on the capital. This has not only led to an increase in the cost of building land and construction, but has also pushed some relatively new existing office buildings off the market. We call such behaviour uncreative destruction and explain why it was possible.

Suggested Citation

  • Olszewski Krzysztof & Trojanowski Dariusz & Łaszek Jacek, 2024. "Low Interest Rates and Uncreative Destruction in the Office Market," Real Estate Management and Valuation, Sciendo, vol. 32(2), pages 90-99.
  • Handle: RePEc:vrs:remava:v:32:y:2024:i:2:p:90-99:n:1008
    DOI: 10.2478/remav-2024-0018
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    References listed on IDEAS

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    1. Cevat Giray Aksoy & Jose Maria Barrero & Nicholas Bloom & Steven J. Davis & Mathias Dolls & Pablo Zarate, 2022. "Working from Home Around the World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 53(2 (Fall)), pages 281-360.
    2. Nicholas, Tom, 2003. "Why Schumpeter was Right: Innovation, Market Power, and Creative Destruction in 1920s America," The Journal of Economic History, Cambridge University Press, vol. 63(4), pages 1023-1058, December.
    3. Arpit Gupta & Vrinda Mittal & Stijn Van Nieuwerburgh, 2022. "Work From Home and the Office Real Estate Apocalypse," NBER Working Papers 30526, National Bureau of Economic Research, Inc.
    4. Jonathan Wiley & Justin Benefield & Ken Johnson, 2010. "Green Design and the Market for Commercial Office Space," The Journal of Real Estate Finance and Economics, Springer, vol. 41(2), pages 228-243, August.
    5. Mark Gallagher & Antony P. Wood, 1999. "Fear of Overbuilding in the Office Sector: How Real is the Risk and Can We Predict It?," Journal of Real Estate Research, American Real Estate Society, vol. 17(1), pages 3-32.
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    More about this item

    Keywords

    predatory competition; low interest rates; office market;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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