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Asymmetric Space Market Adjustment in the London Office Market

Author

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  • Patric Hendershott
  • Colin Lizieri

    (School of Real Estate & Planning, University of Reading Business School)

  • Bryan MacGregor

Abstract

Earlier estimates of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicitly modeling of asymmetric space market responses to employment and supply shocks. A long run structural model linking real rental levels, office-based employment and the supply of office space is estimated and then rental adjustment processes are modeled using an error correction model framework. Rental adjustment is seen to be asymmetric, depending both on the direction of the supply and demand shocks and on the state of the space market at the time of the shock. Vacancy adjustment does not display asymmetries. There is also a supply adjustment equation. Two three-equation systems, one with symmetric rental adjustment and the other with asymmetric adjustment, are subjected to positive and negative shocks to employment. These illustrate differences in the two systems.

Suggested Citation

  • Patric Hendershott & Colin Lizieri & Bryan MacGregor, 2009. "Asymmetric Space Market Adjustment in the London Office Market," Real Estate & Planning Working Papers rep-wp2009-03, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:repxwp:rep-wp2009-03
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    File URL: http://www.henley.reading.ac.uk/rep/fulltxt/0309.pdf
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    References listed on IDEAS

    as
    1. Kieran Farrelly & Ben Sanderson, 2005. "Modelling Regime Shifts in the City of London Office Rental Cycle," ERES eres2005_170, European Real Estate Society (ERES).
    2. Richard Barras, 2005. "A Building Cycle Model for an Imperfect World," Journal of Property Research, Taylor & Francis Journals, vol. 22(2-3), pages 63-96, October.
    3. Wheaton, William C & Torto, Raymond G & Evans, Peter, 1997. "The Cyclic Behavior of the Greater London Office Market," The Journal of Real Estate Finance and Economics, Springer, vol. 15(1), pages 77-92, July.
    4. Peter Englund & Åke Gunnelin & Patric H. Hendershott & Bo Söderberg, 2008. "Adjustment in Property Space Markets: Taking Long‐Term Leases and Transaction Costs Seriously," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(1), pages 81-109, March.
    5. Hendershott, Patric H., 1996. "Rental Adjustment and Valuation in Overbuilt Markets: Evidence from the Sydney Office Market," Journal of Urban Economics, Elsevier, vol. 39(1), pages 51-67, January.
    6. Kieran Farrelly & Ben Sanderson, 2005. "Modelling Regime Shifts in the City of London Office Rental Cycle," Journal of Property Research, Taylor & Francis Journals, vol. 22(4), pages 325-344, December.
    7. Wheaton William C. & Torto Raymond G., 1994. "Office Rent Indices and Their Behavior over Time," Journal of Urban Economics, Elsevier, vol. 35(2), pages 121-139, March.
    8. Webb, R. Brian & Fisher, Jeffrey D., 1996. "Development of an Effective Rent (Lease) Index for the Chicago CBD," Journal of Urban Economics, Elsevier, vol. 39(1), pages 1-19, January.
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    Cited by:

    1. Catherine Bruneau & Souad Cherfouh, 2015. "Long-run equilibrium for the Greater Paris office market and short-run adjustments," Journal of Property Research, Taylor & Francis Journals, vol. 32(4), pages 301-323, December.
    2. John McCartney, 2012. "Short and long-run rent adjustment in the Dublin office market," Journal of Property Research, Taylor & Francis Journals, vol. 29(3), pages 201-226, April.
    3. Arvydas Jadevicius & Brian Sloan & Andrew Brown, 2012. "Examination of property forecasting models - accuracy and its improvement through combination forecasting," ERES eres2012_082, European Real Estate Society (ERES).

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    More about this item

    Keywords

    office market models; rental adjustment; asymmetric responses; vacancy rate;
    All these keywords.

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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