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Models of Office Market Dynamics

International City University of America, USA, Hong Kong Institute of Real Estate, Suite 1301, Asian House, 1 Hennessy Road, Hong Kong, chairman{at}hkir.com

James R. Webb

Department of Finance, Cleveland State University, Cleveland, OH 44114, USA, j.webb{at}csuohio.edu

This study introduces a dynamic adjustment model, relating the growth rate of the supply of office spaces to the vacancy rate and the gap between actual and expected supply growth rates. A two-equation model of stock adjustments based on adaptive expectations is used to provide empirical tests. This study also presents estimates of the space absorption rate by linking it to the expected vacancy rate, office employment rate and the structural change in services sector. The connection between office and product markets is investigated. Annual data from the national office market in the US during the 1977-96 period are consistent with the adjustment equations. Both the office employment rates and the shift in employment to office jobs directly affect the rate of space absorption in office markets.

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