Asymmetric Adjustment in the City of London Office Market

Posted: 12 Feb 2010

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Aberdeen Business School

Colin Lizieri

University of Cambridge - Department of Land Economy

Bryan MacGregor

University of Aberdeen - Centre for Property Research

Date Written: February 10, 2010

Abstract

Earlier estimates of the behavior of the City of London office market are extended by considering a longer time series of data, covering two full cycles, and by explicitly modeling 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 statistically significant 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 properties of the two systems.

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

Suggested Citation

Hendershott, Patric H. and Lizieri, Colin M. and MacGregor, Bryan D., Asymmetric Adjustment in the City of London Office Market (February 10, 2010). Journal of Real Estate Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1550871

Patric H. Hendershott

University of Aberdeen - Aberdeen Business School ( email )

Dunbar Street
Aberdeen AB24 3QY, Scotland
United Kingdom

Colin M. Lizieri (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/staff/profiles/clizieri.htm

Bryan D. MacGregor

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland
44-1224-272-356 (Phone)
44-1224-273-487 (Fax)

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