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An Empirical Analysis of Development Cycles in the Dublin Office Market 1976-2007

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  • McCartney, John

    (formerly Head of Research at Lisney Estate Agents)

Abstract

Commercial property has taken centre-stage in recent debates about Ireland's banking system and the health of our economy. However, these debates have been hampered by a lack of empirical research on non-residential real estate. This article sheds light on one key segment of the commercial property sector - the Dublin office market. Using 32 years of annual data, a simple regression model is elaborated which explains office completions. This indicates that office starts react to two key demand signals - rental growth and lettings activity, with completions following after an 18 month construction lag. Reliance on these simple demand signals, combined with a lengthy construction lag, leads to periodic supply overshoots. In turn, this contributes to the boom-bust pattern that has characterised office building in Dublin over many years. We are now entering the 'bust' phase of this cycle. Office completions remained strong in 2008 but the Dublin market is now overbuilt. Our model predicts that output will fall by 48 per cent next year and by a further 14 per cent in 2010. All else equal this will deduct 0.5-0.6 per cent directly from GNP and will lead to the loss of approximately 7,500 construction jobs.

Suggested Citation

  • 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.
  • Handle: RePEc:esr:qecsas:winter:mccartney
    as

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    File URL: http://www.esri.ie/pubs/QEC2008Win_SA_McCartney.pdf
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    References listed on IDEAS

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    1. Fuerst, Franz, 2006. "Predictable or Not? Forecasting Office Markets with a Simultaneous Equation Approach," MPRA Paper 5262, University Library of Munich, Germany.
    2. William C. Wheaton, 1987. "The Cyclic Behavior of the National Office Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(4), pages 281-299.
    3. Robin A. Howarth & Emil E. Malizia, 1998. "Office Market Analysis: Improving Best-Practice Techniques," Journal of Real Estate Research, American Real Estate Society, vol. 16(1), pages 15-34.
    4. Stephen A. Pyhrr & Stephen E. Roulac & Waldo L. Born, 1999. "Real Estate Cycles and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 7-68.
    5. William C. Wheaton, 1999. "Real Estate "Cycles": Some Fundamentals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 209-230.
    6. Tony McGough & Sotiris Tsolacos, 1999. "Interactions within the Office Market Cycle in Great Britain," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 219-232.
    7. Henry O. Pollakowski & Susan M. Wachter & Lloyd Lynford, 1992. "Did Office Market Size Matter in the 1980s? A Time-Series Cross-Sectional Analysis of Metropolitan Area Office Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 302-324.
    8. Glenn R. Mueller, 1999. "Real Estate Rental Growth Rates at Different Points in the Physical Market Cycle," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 131-150.
    9. 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.
    10. 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.
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    Keywords

    qec/Ireland/growth;

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