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Fear of Overbuilding in the Office Sector: How Real is the Risk and Can We Predict It?

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    Abstract

    After a prolonged hiatus following the boom of the 1980s, the pace of office construction has begun to increase, raising the specter of overbuilding in several metropolitan areas (MSAs). Research has shown that commercial property markets are prone to overbuilding, however, there is a dearth of research on construction cycles at the MSA level. This article examines three techniques that can be used to examine the probability of overbuilding within the office sector. Based on quarterly data from 1977-1997, this research concludes that both base employment and the Space Market Index provide the most practical methods for assessing the risk of overbuilding. There is considerable variation across MSAs in terms of the risk of overbuilding. This has important implications for real estate investors from a tactical asset allocation viewpoint.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol17n01/v17p003.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 17 (1999)
    Issue (Month): 1 ()
    Pages: 3-32

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    Handle: RePEc:jre:issued:v:17:n:1:1999:p:3-32

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Web page: http://www.aresnet.org/

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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    1. Jacques Gordon & Paige MosbaughTodd Canter & Todd Canter, 1996. "Integrating Regional Economic Indicators with the Real Estate Cycle," Journal of Real Estate Research, American Real Estate Society, vol. 12(3), pages 469-501.
    2. Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
    3. John Benjamin & G. Donald Jud & Daniel T. Winkler, 1998. "The Supply Adjustment Process in Retail Space Markets," Journal of Real Estate Research, American Real Estate Society, vol. 15(3), pages 297-308.
    4. Grenadier, Steven R, 1995. "The Persistence of Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 10(2), pages 95-119, March.
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    Cited by:
    1. Stephen A. Pyhrr & Stephen E. Roulac & Waldo L. Born, 1999. "Real Estate Cycles and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 7-68.

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