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The Contemporary DPW Model for the Commercial Real Estate Sector and its Analytical Capabilities

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  • Łaszek Jacek

    (SGH Warsaw School of Economics, al. Niepodległości 162, 02-554 Warszawa, Poland)

Abstract

This paper presents an adjustment of the classical DPW model, which includes two different interest rates and the secondary market in the commercial property market. Separating the mortgage rate from the discount rate helps to understand why not all investments which seem to be profitable are carried out. If the discount rate is much higher than the mortgage rate, the risk will prevent investors from entering this investment. In the longer run, the stock will depreciate, and the equilibrium amount of commercial space will decline. The other important point is the consideration of the secondary market, through which investors exit the market when profitability declines. Also the inclusion of a demand curve in the primary market and accounting for the fact that developers in the CRE market are mainly price or cost takers helps to understand our observations what we observe in the real world, much better.

Suggested Citation

  • Łaszek Jacek, 2025. "The Contemporary DPW Model for the Commercial Real Estate Sector and its Analytical Capabilities," Real Estate Management and Valuation, Sciendo, vol. 33(3), pages 87-100.
    • Handle: RePEc:vrs:remava:v:33:y:2025:i:3:p:87-100:n:1008
    DOI: 10.2478/remav-2025-0028
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    References listed on IDEAS

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    1. Dominique Achour-Fischer, 1999. "An Integrated Property Market Model: A Pedagogical Tool," Journal of Real Estate Practice and Education, Taylor & Francis Journals, vol. 2(1), pages 33-43, January.
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    3. Daly, Pierce & Ryan, Ellen & Blicke, Oscar Schwartz, 2024. "Mapping the maze: a system-wide analysis of commercial real estate exposures and risks," Macroprudential Bulletin, European Central Bank, vol. 25.
    4. Trond-Arne Borgersen & Anne Wenche Emblem, 2022. "Mortgage Market Induced Booms and Busts in the Housing Market in a Modified DiPasquale-Wheaton Model," International Real Estate Review, Global Social Science Institute, vol. 25(3), pages 281-306.
    5. Denise DiPasquale & William C. Wheaton, 1992. "The Markets for Real Estate Assets and Space: A Conceptual Framework," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 181-198, June.
    6. repec:ecb:ecbmbu:2024::1 is not listed on IDEAS
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    Keywords

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    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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