Explaining Real Commercial Rents Using an Error Correction Model with Panel Data

Posted: 15 May 2002

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Bryan MacGregor

University of Aberdeen - Centre for Property Research

Michael White

University of Aberdeen - Centre for Property Research

Abstract

This paper presents rent models for retail and office property in the U.K. Panel data are used covering 11 regions for 29 years, enabling us to overcome the limitations of a relatively short time series. We use an Error Correction Model (ECM) framework to estimate long run equilibrium relationships and short term dynamic corrections. The combination of panel data and an ECM is an innovative approach that is still being developed in econometrics. We construct new supply series that combine infrequent stock data with more frequent construction data. Separate regional models are estimated for retail and office properties. The regions are then combined into a number of panels on the basis of the income and price elasticities in the long run and short run models. Unlike previous studies, we find no evidence of a broad north-south divide between low growth and high growth regions. Like these studies we do find a London effect: in London, demand elasticities for space with respect to both price (rent) and income are much lower in magnitude. We conclude that, while the economic drivers may vary, there is no evidence of differences in the operation of the regional property markets outside London. Elasticities for retail and office are similar. Our final models are parsimonious with single measures of economic activity and of supply and always support the use of an ECM.

Keywords: panel estimation, error correction, regional rent models

Suggested Citation

Hendershott, Patric H. and MacGregor, Bryan D. and White, Michael James, Explaining Real Commercial Rents Using an Error Correction Model with Panel Data. Available at SSRN: https://ssrn.com/abstract=301091

Patric H. Hendershott

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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)

Michael James White (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

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