Office Market Forecasts: Towards a Precinct Approach
||Office Market Forecasts: Towards a Precinct Approach
||Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
||Significant commercial real estate research published internationally over the past 20 years has focused on modelling office property markets in endeavours to identify and quantify the determinants of changes in the levels of rents, values and construction activity. A specific objective of much of this research has been to generate property market forecasts. A review of 37 published office rent and space supply models provides a clear indication of the perceived dominant explanatory variables adopted by the researchers. Despite some consensus on these variables, a number of these studies demonstrated shortcomings in the accuracy of model derived out-of-sample forecasts as compared to actual market movements. Modern commercial real estate valuation and project viability study methods place significant reliance on forecasts of market demand and supply variables. However, a survey of office building valuers in the Australian city of Brisbane found inconsistencies among firms in the formulation of forecasts applied in discounted cash flow based property assessments. This aspect adds a further complication to the challenge of developing plausible market forecasts. The literature also provides evidence of an evolution of office market forecasting down from a national level to an individual city level and, more recently, down to a sub-market level. However, there has been a reluctance to recognise that values, rents and vacancy levels do not move in a homogenous manner within individual central business districts. Hence, citywide forecasts are applied in assessments of individual properties or projects without regard to the heterogeneous market trends evident within central business districts. After reviewing these issues, this paper examines the Brisbane city office market with the assistance of geographic information system technology to map the transition of land values over time in order to demonstrate the lack of market uniformity and to identify declining and emerging locations. Other built form, planning and market data is also mapped with the aim of segmenting the city into definable market precincts. This method is also used to plot potential redevelopment sites, having space supply implications for individual precincts. The study is a precursor to the incorporation of precinct variables in an econometric model with the objective of potentially enhancing office rent forecasts for properties within the sample market.
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