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Paper eres2013_245:
Efficiency in the United Kingdom Commercial Property Market: A Supply Perspective

id eres2013_245
authors Devaney, Steven; Oliver Holtemöller, Rainer Schulz
year 2013
title Efficiency in the United Kingdom Commercial Property Market: A Supply Perspective
source 20th Annual European Real Estate Society Conference in Vienna, Austria
summary Informational efficient prices are a necessary requirement for optimal resource allocation in the commercial real estate market. Prices are informational efficient if they reflect buildings' benefit to marginal buyers, thereby taking account of all available information on future market development. Prices that do not reflect available information may lead to over- or undersupply if developers react to these inefficient prices. In this study, we examine the efficiency of the UK commercial property market and the interaction between prices, construction cost, and new supply. We employ a dataset in our study that relates to the City of London office market over the period 1972-2011. First, we assess if real estate prices are in accordance with fundamental values, thereby testing for informational efficiency. By comparing prices and fundamental values, we can measure informational inefficiency and explore possible causes for it. Second, we assess if developers reacted correctly to the price signals. Development (or the lack thereof) should be triggered by deviations between fundamental values and cost; if prices do not reflect fundamental values, then they should have no impact on development decisions. We study empirically whether or not this was the case in what is commonly held to be one of the most mature and transparent real estate markets in the world.
keywords Informational efficiency, City of London, Office Markets, Development
series ERES:conference
type paper session
email s.p.devaney@rdg.ac.uk
more http://library.eres.org/cgi-bin/rsa98.pl?conf=ERES2013&type=session&theme=O&slot=5710
discussion No discussions. Post discussion ...
ratings
session O-6: Real Estate Finance & Investment
last changed 2014/10/21 21:51
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