Adjustment in Property Space Markets: Taking Long-Term Leases and Transaction Costs Seriously

29 Pages Posted: 2 Feb 2008

See all articles by Peter Englund

Peter Englund

Swedish House of Finance

Åke Gunnelin

affiliation not provided to SSRN

Patric H. Hendershott

University of Aberdeen - Aberdeen Business School

Bo Söderberg

affiliation not provided to SSRN

Abstract

Markets for property space adjust only gradually because tenants and landlords are constrained by long-term leases and transaction and information costs. Not only do rents adjust slowly, but space occupancy, which depends on historical rents, often differs from demand at current rent. This creates hidden vacancies, vacancies that will develop in the future if market rent and the space demand driver are unchanged. That is, if current rent is greater/lesser than average rent, then hidden vacancies are positive/negative. Moreover, because of hidden vacancies, open vacancies and rent are not mirror images of each other. Thus it is necessary to estimate both rental and vacancy rate adjustment processes. We do this using annual data for Stockholm offices during the 1977-2002 period and simulate the response of rent and vacancies (open and hidden) to an employment shock.

Suggested Citation

Englund, Peter and Gunnelin, Åke and Hendershott, Patric H. and Söderberg, Bo, Adjustment in Property Space Markets: Taking Long-Term Leases and Transaction Costs Seriously. Real Estate Economics, Vol. 36, No. 1, pp. 81-109, Spring 2008. Available at SSRN: https://ssrn.com/abstract=1089620 or http://dx.doi.org/10.1111/j.1540-6229.2008.00208.x

Peter Englund (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Åke Gunnelin

affiliation not provided to SSRN

No Address Available

Patric H. Hendershott

University of Aberdeen - Aberdeen Business School ( email )

Dunbar Street
Aberdeen AB24 3QY, Scotland
United Kingdom

Bo Söderberg

affiliation not provided to SSRN

No Address Available

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