The efficiency of the market for office blocks, an empirical study of Kista - pit‰isi siirt‰‰ TO / PEÖ

Kista is one of the largest workingarea in Sweden. It has a history of approximately 30 years. During this period the area has expand very much and has today an officespace of approximately 1 000 000 square meters. The area has had four periods of expansion, a slow expansion in the late 70Ìs and early 80Ìs, a boom in the late 80Ìs, a slow expansion in the 90Ìs and again a boom in the late 90Ìs. The market for office space has declined a lot during 1999- 2002. From having an excess of demand in the 90Ìs there are indication of an excess of supply the next few years. The purpose of this paper, as the title suggest, is to find out how well the market for building respond to basic economic fundamentals. The focus is on the supply side of the market. For testing the market efficiency Tobins q have been used. Endogenous variable is the stock of office and exogenous are the construction cost, market price for office building, a time factor and interest rate. The data for the empirical study are from 1980-2000. The results, at this point, show that with our construction of Tobins q the decision to build seem to be in some case irrational. It is difficult to find clear correlation between fundamentals and construction of officespace. One reason why there is a low correlation between Tobins q and construction could be that the speed of adjustment is very low.