Natural vacancy rates in global office markets

Abstract

PurposeThis paper seeks to contribute to knowledge of the dynamics of global office markets with an assessment of the interaction of rental growth and vacancy rates across a sample of the world's leading office markets.Design/methodology/approachEconometric methods are used to estimate the relationship between rental growth and vacancy rates (taking into account the possible simultaneity between the two variables) and these equations are then used to estimate the natural vacancy rate at an individual city level and collectively for the three regions assessed (Europe, Asia Pacific and North America). An estimate is also made of the global natural vacancy rate.FindingsThe results suggest that estimates of natural vacancy rates vary significantly across the world but these estimates can be helpful to those seeking to understand global office markets. European markets in general have lower natural vacancy rates than those in North America. In Asia Pacific markets there is a greater variation between markets. In general developed markets have lower natural vacancy rates than developing ones. In developing markets the concept of a natural vacancy rate is one that should be applied with care, given the weakness of data and the speed with which they are undergoing structural change. When examining the differences in natural vacancy rates between markets, it is clear that fundamental supply and demand factors are key in driving those differences.Practical implications“Rule of thumb” estimates of natural vacancy rates are relatively common. However, a robust methodology for calculating natural vacancy rates is a powerful analytical tool for investors, occupiers and real estate advisors, as it enables a judgement of what supply/demand balance will trigger rental growth.Originality/valueIn estimating the natural vacancy rate across a sample of the world's leading office markets the paper makes an original contribution to the understanding of global office markets and in particular delivers an appreciation of how rental growth and vacancy rates interact.

Commercial Vacancy Prediction Using LSTM Neural Networks

“…Sanderson, Farrelly, and Thoday [11] (2006) compared the natural vacancy rates of office markets in large cities worldwide and discovered that these were highest in the United States and lowest in Europe. Their analysis showed that the natural vacancy rate was low in markets where urbanization and development were actively taking place, from a spatial perspective.…”

Sustainability and the Expected Effects of Office-to-Residential Conversion in Historic Downtown Areas of South Korea

“…Sivitanides defines natural vacancy as the optimal inventory, taking into account the marginal costs of tenant demand and vacancy retention; that is, the vacant stock facilitates the search process for tenants and lessors [41]. Sanderson presented estimates of global and regional natural vacancy rates of 5.6% in the Asia Pacific region, 6.7% in Europe, 11.6% in North America, and 8.1% globally [42]. The office area available for conversion to residential space may be estimated by subtracting the natural vacancy from the overall office vacancy rate, as illustrated in Table 7.…”

Situations Vacant: A Conceptual Framework for Commercial Real Estate Vacancy

“…Various researchers have examined vacancy; those interested in obsolescence and depreciation (Baum, 1991(Baum, , 1993Baum & McElhinney, 1997;Dunse et al, 2002;Andrew & Pitt, 2006;Crosby & Devaney 2006;Crosby et al 2011); those interested in the adaptation of vacant properties (Barlow & Gann, 1996;Beauregard, 2006;Kincaid, 2002;Heath 2001;Geraedts & van der Voordt, 2003;Agre, 2005;Langston et al, 2008;Remoy, 2010;Remoy and Wilkinson, 2012;Wilkinson and Read, 2011) those who want to map the characteristics of vacancy (Myers & Wyatt, 2004;Katyoka & Wyatt, 2008;Remoy H & Koppels, 2009); those who model the cyclical behaviour of the economy and property (Ball 2003;Barras, 2009;Wheaton 1999); and those who reflect on the medium to long-term rental adjustment process (Blank & Winnick, 1953;Wincott, 1997;Voith & Crone, 1988;Crone, 1989;Grenadier, 1995;Pissarides, 2000Pissarides, , 2005Sanderson, et al, 2006;Miceli & Sirmans, 2013). Concurrently, professional practices regularly also use relative vacancy levels (alongside absorption and take-up, rent and yield) to monitor the performance of local markets (see quarterly updates from international commercial real estate companies, CBRE, Colliers and Cushman and Wakefield, BNP Paribas, Jones Lang LaSalle).…”