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A System Dynamics Model of Cyclical Office Oversupply

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    Abstract

    This article explores office market system dynamics through a simple simulation model. Model lag and adjustment parameters similar to real office markets generate explosive cycles. Simulations show that deviations from equilibrium can be reduced by changing the information structure of the system. System dynamics, principle/agent conflicts, a prisoners’ dilemma game, faulty information (poor forecasting, market research and valuation techniques), regulatory institutions, and differing equilibria in office space and financial markets all contribute to allocative inefficiency. Thinking of office markets as a "managed feedback control system" may be a useful representation of the oversupply problem. Leverage points for system improvement may be a municipal "queue" to address agency and prisoner's dilemma problems, improved forecasting techniques and more reliance on forecasting.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol18n01/v18p233.pdf
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    Bibliographic Info

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

    Volume (Year): 18 (1999)
    Issue (Month): 1 ()
    Pages: 233-255

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    Handle: RePEc:jre:issued:v:18:n:1:1999:p:233-255

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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. Waldo L. Born & Stephen A. Pyhrr, 1994. "Real Estate Valuation: The Effect of Market and Property Cycles," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 455-486.
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    Cited by:
    1. Arango, Santiago & Larsen, Erik, 2011. "Cycles in deregulated electricity markets: Empirical evidence from two decades," Energy Policy, Elsevier, vol. 39(5), pages 2457-2466, May.
    2. Gunther Maier & Shanaka Herath, 2009. "Real Estate Market Efficiency: A Survey of Literature," SRE-Disc sre-disc-2009_07, Institute for the Environment and Regional Development, Department of Socioeconomics, Vienna University of Economics and Business.
    3. Rose Lai & Ko Wang & Jing Yang, 2007. "Stickiness of Rental Rates and Developers’ Option Exercise Strategies," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 159-188, January.
    4. Olsina, Fernando & Garces, Francisco & Haubrich, H.-J., 2006. "Modeling long-term dynamics of electricity markets," Energy Policy, Elsevier, vol. 34(12), pages 1411-1433, August.

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