Asymmetric Properties of Office Rent Adjustment

Abstract

In this paper we use an error correction model for understanding the changes in real office rents for a panel of 15 U.S. MSA's over the period [1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005][2006][2007]. We find that office rents in all cities react positively to a rise in office employment and lagged rent changes, while lagged deviations from equilibrium rent levels exhibit a slow and partial adjustment over time. Given the non-negativity constraint of vacancy rates we extend the basic model by examining whether rents react to positive changes in employment conditional on the vacancy rate level. Our results show that office rents react significantly stronger to increases in employment when vacancy rates are below the long-term average. We also repeat the analysis for clusters of cities based on similarities in rent and employment dynamics using multi dimensional scaling. The cluster results confirm the overall conclusions and show that our results are not solely valid for the full panel of cities.

A Regime‐Switching Approach to Modeling Rental Prices of U.K. Real Estate Sectors

“…However, it can also reveal some new insights. We find, for example, that some prior work on rental adjustment may have been too restrictive, such as the assumption of asymmetric rental adjustment in only one direction (Brounen and Jennen 2009).…”

“…, Clapp 1993, Colwell, Munneke and Trefzger 1998, Scott and Judge 2000). The recent studies that emphasize asymmetries (Brounen and Jennen 2009, Hendershott, Lizieri and MacGregor 2010) also fall into this category because asymmetry implies a particular type of nonlinearity.…”

“…5 5 To capture the asymmetry in office rent adjustments, Brounen and Jennen (2009) expand the reduced‐form estimation equation of Hendershott, MacGregor and Tse (2002) by an interaction term consisting of the office employment growth rate and an indicator variable that equals one if both the vacancy rate is below its long‐term average and the growth rate of office employment is positive. …”

The Determinants of Rental Rates and Selling Prices of Office Spaces in Jakarta: A Macroeconometric Model Using VECM Approach

“…Brounen and Jennen (2009) found that the rental rates in all 15 cities in the United States would respond to the increase in the level of workers of office. The increase in the level of employment is positively associated with office rental rates.…”

Multifamily residential asset and space markets and linkages with the economy

“…Their ECMs are based on the two-step procedure of Engle and Granger and their models have been used by several researchers to analyse the rental adjustment process for office markets in the U.S. (Brounen & Jennen, 2009a), Dublin (McCartney, 2012), Germany (Adams & Füss, 2012), and several other European cities (Brounen & Jennen, 2009b;Mouzakis & Richards, 2007). Englund, Gunnelin, Hendershott & Söderberg (2008) and Hendershott, Lizieri & MacGregor (2010) also follow the Engle and Granger strategy to ECMs.…”