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Forecasting the Manhattan office market with a simultaneous equation model

Author

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  • Franz Fuerst

    (CUNY Graduate Center, Center for Urban Research)

Abstract

In order to explore the predictability of the Manhattan office market, a three-stage simultaneous equation model is applied in this paper. 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 of the Manhattan office market. The results demonstrate that the Manhattan markets reacts efficiently and predictably to changes in market conditions, especially to the economic shock generated by the 9/11 attacks. 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. Eventually, the market implications of three exogenously defined employment forecasts are tested with the model.

Suggested Citation

  • Franz Fuerst, 2004. "Forecasting the Manhattan office market with a simultaneous equation model," Urban/Regional 0410006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpur:0410006
    Note: Type of Document - pdf; pages: 35
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/urb/papers/0410/0410006.pdf
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    References listed on IDEAS

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    1. Richard Arnott, 1997. "Rent Control," Boston College Working Papers in Economics 391., Boston College Department of Economics.
    2. 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.
    3. Arnott, Richard & Igarashi, Masahiro, 2000. "Rent control, mismatch costs and search efficiency," Regional Science and Urban Economics, Elsevier, vol. 30(3), pages 249-288, May.
    4. 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, March.
    5. 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.
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    Cited by:

    1. Richard Malle, 2010. "Un modèle à équations simultanées du cycle des bureaux en région parisienne," Économie et Prévision, Programme National Persée, vol. 194(3), pages 93-108.
    2. Fuerst, Franz, 2006. "Predictable or Not? Forecasting Office Markets with a Simultaneous Equation Approach," MPRA Paper 5262, University Library of Munich, Germany.

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    More about this item

    Keywords

    Simultaneous equation model; real estate; forecasting; equilibrium rent and occupancy; construction activity;
    All these keywords.

    JEL classification:

    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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