Structural variation in commercial property occupier markets - A panel data study of European office centres

Although partial equilibrium neo-classical models have been established as a theoretical foundation for applied studies in a wide range of markets, but there is a continuing dispute about their effectiveness in the case of commercial real estate. The blame for this indecisiveness is commonly put on the complicated structure and limited quality and availability of data. This paper employs a standard neo-classical model in a joint analysis of the major European office markets, and develops a generalised modelling umbrella for this class of markets, using contemporary Panel Data methodology. Initially we examine the nature of structural variations and then attempt to explain the causality of structural variability on the basis of the same determinants, i.e. demand, supply and prices/rents. This approach allows each individual market structure to be compared to others and the establishment of a solid microeconomic foundation as a protection from misleading modelling conclusions cause by problems in the data. Based on the comparative performance of both Error Correction and Autoregressive Distributed Lag models inferences can be drawn about intra-market dependence and markets comparative speed of adjustment to equilibrium and efficiency.