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Paper eres2001_178:
Estimation of the Rental Adjustment Process

id eres2001_178
authors Hendershott, Patric; MacGregor, Bryan D.; Tse, Raymond Y.C.
year 2001
title Estimation of the Rental Adjustment Process
source 8th European Real Estate Society Conference (26-29 June 2001) Alicante, Spain
summary Rental adjustment equations have been estimated for a quarter century. In the U.S., models have used the deviation of the actual vacancy rate from the natural rate as the main explanatory variable, while in the UK, drivers of the demand for space have dominated the estimation. The recent papers of Hendershott (1996) and Hendershott, Lizieri and Matysiak (HLM, 1999) fall into the former category. We re-estimate these equations using alternative formulations and present evidence that changes in real interest rates were not capitalized into Sydney and London real land prices. We then derive a model incorporating supply and demand factors within an Error Correction framework, and show how the U.S. and UK traditions are special cases of this more general formulation. We next estimate this equation using data from the City of London office market. Our initial specification of this more generalized model is greatly superior to the vacancy rate model. Finally, we estimate a two-equation variant with a separate vacancy rate equation; this model also performs much better than that of HLM. Importantly, our model passes standard modern econometric requirements for unit roots and co-integration.
keywords Rent change; vacancy; office markets; London; Sydney
series ERES:conference
content file.pdf (56,741 bytes)
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ratings
session Estimation Technics in Real Estate
last changed 2009/07/10 18:07
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