Adjustment in Property Space Markets: Estimates from the Stockholm Office Market

Peter Englund, Ake Gunnelin, Patric Hendershott and Bo Soderberg

No 11345, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Markets for property space adjust only gradually because tenants are constrained by long-term leases and landlords and tenants face transactions and information costs. Not only do rents adjust slowly, but space occupancy may differ from demand at current rent, giving rise to "hidden vacancies". We estimate the joint dynamics of office rents and vacancies using an error-correction model using a new lease rent series for Stockholm offices 1977--2002 estimated on 2,500 leases. It takes 5-10 years for the market to adjust to a shock. In a model simulation of a positive employment shock open vacancies fall from the natural level of 7 percent to below 4 percent, while hidden vacancies increase by about as much. Most of the variation in hidden vacancies over time is explained by the difference between demand at current and average rent on existing leases, which we calculate using data on contract lease length.

JEL-codes: R0 R1 (search for similar items in EconPapers)
Date: 2005-05
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Published as Peter Englund & Åke Gunnelin & Patric H. Hendershott & Bo Söderberg, 2008. "Adjustment in Property Space Markets: Taking Long-Term Leases and Transaction Costs Seriously," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(1), pages 81-109, 03.

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Working Paper: Adjustment in Property Space Markets: Estimates from the Stockholm Office Market (2005)
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