Adjustment in Property Space Markets: Estimates from the Stockholm Office Market / Peter Englund, Ake Gunnelin, Patric H. Hendershott, Bo Soderberg.

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Englund, Peter

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11345.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s):

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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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w11345 (Browse shelf(Opens below))	Not For Loan

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May 2005.

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.