Forecasting the Manhattan Office Market with a Simultaneous Equation Model

Abstract:     
In order to explore the predictability of the Manhattan office market with an econometric model, a three-stage system of simultaneous equations is utilized 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 empirical estimation demonstrates that the New York office market 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. 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.

Finally, a forecast of the Manhattan office market until 2010 is presented under three different scenarios of exogenously determined office employment.

Number of Pages in PDF File: 34

Keywords: Simultaneous equation model, econometric forecasting

JEL Classification: R33, C32, C53

working papers series