Predictable or Not? Forecasting Office Markets with a Simultaneous Equation Approach
AbstractThe main objective of this paper is to elucidate the capability of time-series regression models to capture and forecast movements in occupancy patterns, rental rates and construction activity. The model presented is a three-stage simultaneous equation model. The first stage incorporates the office space market in terms of occupied space and absorption of new space. The second stage captures the adjustment of office rents to changing market conditions and the third stage specifies the supply response to market signals in terms of construction of new office space. The standard simultaneous model is subsequently modified to account for the specific characteristics using the New York market as a case study. The results demonstrate that the market reacts efficiently and predictably to changes in market conditions. The significance of the estimated parameters underscores the general validity and robustness of the simultaneous equation approach in modeling real estate markets. The modifications of the standard model, notably the inclusion of sublet space in the rent equation, contributed considerably to improving the explanatory power of the model. Finally, we test whether a non-linear function performs better than the original linear approach and find mixed evidence based on the limited empirical dataset of this study.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5262.
Date of creation: 20 Jun 2006
Date of revision:
forecasting; real estate; office markets; dynamic models; simultaneous equation approach; multivariate regression models;
Find related papers by JEL classification:
- R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-13 (All new papers)
- NEP-FOR-2007-10-13 (Forecasting)
- NEP-URE-2007-10-13 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Timothy W. Viezer, 1999. "Econometric Integration of Real Estate's Space and Capital Markets," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 503-519.
- Chen, Nai-fu, 1983. " Some Empirical Tests of the Theory of Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 38(5), pages 1393-1414, December.
- Franz Fuerst, 2004. "Forecasting the Manhattan office market with a simultaneous equation model," Urban/Regional 0410006, EconWPA.
- John S. Hekman, 1985. "Rental Price Adjustment and Investment in the Office Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 32-47.
- Patric H. Hendershott & Colin M. Lizieri & George A. Matysiak, 1999. "The Workings of the London Office Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 365-387.
- Shilling, James D. & Sirmans, C. F. & Corgel, John B., 1987. "Price adjustment process for rental office space," Journal of Urban Economics, Elsevier, vol. 22(1), pages 90-100, July.
- Wheaton, William C & Torto, Raymond G & Evans, Peter, 1997. "The Cyclic Behavior of the Greater London Office Market," The Journal of Real Estate Finance and Economics, Springer, vol. 15(1), pages 77-92, July.
- McCartney, John, 2008. "An Empirical Analysis of Development Cycles in the Dublin Office Market 1976-2007," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2008(4-Winter), pages 68-92.
- Barrett, Alan & Kearney, Ide & Goggin, Jean, 2008. "Quarterly Economic Commentary, Winter 2008," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20084, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.