Supply Adjustments to Demand Shocks in the Commercial Real Estate Market

Posted: 11 Aug 1999

See all articles by George H. Lentz

George H. Lentz

California State Polytechnic University, Pomona

K. S. Maurice Tse

The University of Hong Kong - School of Economics and Finance

Abstract

This paper contributes a theoretical investigation of real estate supply adjustments in the commercial real estate market. Simple theoretical linkages between the goods market (the demand side) and the space market (the supply side) are developed and then used to explain the optimal supply decisions of space producers. Propositions relating to how space production decisions are made under conditions of demand certainty, demand uncertainty and free entry are derived from optimization models. Under demand certainty, the adjustment of space supply is shown to be affected by whether an exogenous shock is perceived as mild or disastrous. Under demand uncertainty, construction based on pent-up demand is shown to be suboptimal.

JEL Classification: R11, R12

Suggested Citation

Lentz, George H. and Tse, Maurice K. S., Supply Adjustments to Demand Shocks in the Commercial Real Estate Market. Available at SSRN: https://ssrn.com/abstract=171844

George H. Lentz (Contact Author)

California State Polytechnic University, Pomona ( email )

3801 W. Temple Avenue
Pomona, CA 91768
United States
909-869-4435 (Phone)
909-869-2124 (Fax)

Maurice K. S. Tse

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
011-852-2857-8636 (Phone)
011-852-2548-1152 (Fax)

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