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Office Market Dynamics in Madrid: Modelling with a Single-Equation Error Correction Mechanism

Author

Listed:
  • Ramiro J. Rodriguez

    (BNP Paribas Real Estate)

  • Simon Sosvilla-Rivero

    (Universidad Complutense de Madrid)

Abstract

This paper seeks to explain the office market dynamics in Madrid by using cointegration models. Specifically, we focus on the equilibrium path of stock, vacancy rate and letting rents, and feedback with two exogenous economic determinants, namely, service sector employment and gross domestic product. We apply for the first time a single-equation error correction mechanism (ECM) to a system of equations for the commercial property market of Madrid and examine its accuracy when compared to the more frequently used classical two-step ECM. The main findings to emerge from our empirical analysis are that rents and vacancy rates react rapidly when they do not correspond to their equilibrium level. Stock, as expected, responds more slowly when it does not correspond to its long-term path. We draw on quarterly observations for the Madrid market between 2001:Q1 and 2015:Q2.

Suggested Citation

  • Ramiro J. Rodriguez & Simon Sosvilla-Rivero, 2017. "Office Market Dynamics in Madrid: Modelling with a Single-Equation Error Correction Mechanism," International Real Estate Review, Global Social Science Institute, vol. 20(4), pages 451-491.
    • Handle: RePEc:ire:issued:v:20:n:04:2017:p:451-491
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    References listed on IDEAS

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    More about this item

    Keywords

    Error Correction Model; Office Market; Single-Equation Error Correction Mechanism;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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