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Rental Price Adjustment and Investment in the Office Market

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  • John S. Hekman

Abstract

This study presents estimates of the rental price adjustment mechanism and investment response in the office construction market using data from fourteen cities over the period 1979-1983. Market rents are seen to adjust in response to local as well as national economic conditions. Investment, as measured by building permits, responds strongly to rent in a two-stage regression model, as well as to the long-term growth rate of office employment. Tests for a cobweb-type overreaction by investors do not reveal any cyclical characteristics of the market, indicating that the effects of random demand shocks are not felt beyond the normal construction period. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:reesec:v:13:y:1985:i:1:p:32-47
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    1. Rosen, Kenneth T & Smith, Lawrence B, 1983. "The Price-Adjustment Process for Rental Housing and the Natural Vacancy Rate," American Economic Review, American Economic Association, vol. 73(4), pages 779-786, September.
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