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Asymmetric Space Market Adjustment in the London Office Market

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  • Patric Hendershott
  • Colin Lizieri

    ()
    (School of Real Estate & Planning, University of Reading Business School)

  • Bryan MacGregor

Abstract

Earlier estimates of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicitly modeling of asymmetric space market responses to employment and supply shocks. A long run structural model linking real rental levels, office-based employment and the supply of office space is estimated and then rental adjustment processes are modeled using an error correction model framework. Rental adjustment is seen to be asymmetric, depending both on the direction of the supply and demand shocks and on the state of the space market at the time of the shock. Vacancy adjustment does not display asymmetries. There is also a supply adjustment equation. Two three-equation systems, one with symmetric rental adjustment and the other with asymmetric adjustment, are subjected to positive and negative shocks to employment. These illustrate differences in the two systems.

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File URL: http://www.henley.reading.ac.uk/rep/fulltxt/0309.pdf
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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series Real Estate & Planning Working Papers with number rep-wp2009-03.

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Length: 41 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:rdg:repxwp:rep-wp2009-03

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Keywords: office market models; rental adjustment; asymmetric responses; vacancy rate;

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  1. 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.
  2. Kieran Farrelly & Ben Sanderson, 2005. "Modelling Regime Shifts in the City of London Office Rental Cycle," Journal of Property Research, Taylor & Francis Journals, vol. 22(4), pages 325-344, December.
  3. Hendershott, Patric H., 1996. "Rental Adjustment and Valuation in Overbuilt Markets: Evidence from the Sydney Office Market," Journal of Urban Economics, Elsevier, vol. 39(1), pages 51-67, January.
  4. Wheaton William C. & Torto Raymond G., 1994. "Office Rent Indices and Their Behavior over Time," Journal of Urban Economics, Elsevier, vol. 35(2), pages 121-139, March.
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