Estimation of the Rental Adjustment Process

Patric Henry Hendershott, Bryan Duncan MacGregor, R. Tse

    Research output: Contribution to journalArticle

    58 Citations (Scopus)

    Abstract

    Rental adjustment equations have been estimated for a quarter century. In the United States, models have used the deviation of the actual vacancy rate from the natural rate as the main explanatory variable, while in the United Kingdom, drivers of the demand for space have dominated the estimation, The recent papers of Hendershott (1996) and Hendershott, Lizieri and Matysiak (HLM 1999) fall into the former category. We reestimate these equations using alternative formulations and present evidence that changes in real interest rates were not capitalized into Sydney and London real land prices. We then derive a model incorporating supply and demand factors within an Error Correction framework and show how the U.S, and U.K, traditions are special cases of this more general formulation. We next estimate a two-equation variant with a separate vacancy rate equation using data from the City of London office market. This model allows calculation of the underlying price (rent) and income (employment) elasticities and explains the data marginally better than the HLM model. Importantly, our model passes standard modern econometric requirements for unit roots and cointegration.

    Original languageEnglish
    Pages (from-to)165-184
    Number of pages19
    JournalReal Estate Economics
    Volume30
    Issue number2
    DOIs
    Publication statusPublished - 2002

    Keywords

    • LONDON OFFICE MARKET
    • NATURAL VACANCY RATE
    • BEHAVIOR

    Cite this

    Estimation of the Rental Adjustment Process. / Hendershott, Patric Henry; MacGregor, Bryan Duncan; Tse, R.

    In: Real Estate Economics, Vol. 30, No. 2, 2002, p. 165-184.

    Research output: Contribution to journalArticle

    Hendershott, Patric Henry ; MacGregor, Bryan Duncan ; Tse, R. / Estimation of the Rental Adjustment Process. In: Real Estate Economics. 2002 ; Vol. 30, No. 2. pp. 165-184.
    @article{118f8fc12ad04128bf7a488405f20be3,
    title = "Estimation of the Rental Adjustment Process",
    abstract = "Rental adjustment equations have been estimated for a quarter century. In the United States, models have used the deviation of the actual vacancy rate from the natural rate as the main explanatory variable, while in the United Kingdom, drivers of the demand for space have dominated the estimation, The recent papers of Hendershott (1996) and Hendershott, Lizieri and Matysiak (HLM 1999) fall into the former category. We reestimate these equations using alternative formulations and present evidence that changes in real interest rates were not capitalized into Sydney and London real land prices. We then derive a model incorporating supply and demand factors within an Error Correction framework and show how the U.S, and U.K, traditions are special cases of this more general formulation. We next estimate a two-equation variant with a separate vacancy rate equation using data from the City of London office market. This model allows calculation of the underlying price (rent) and income (employment) elasticities and explains the data marginally better than the HLM model. Importantly, our model passes standard modern econometric requirements for unit roots and cointegration.",
    keywords = "LONDON OFFICE MARKET, NATURAL VACANCY RATE, BEHAVIOR",
    author = "Hendershott, {Patric Henry} and MacGregor, {Bryan Duncan} and R. Tse",
    year = "2002",
    doi = "10.1111/1540-6229.00036",
    language = "English",
    volume = "30",
    pages = "165--184",
    journal = "Real Estate Economics",
    issn = "1080-8620",
    publisher = "Wiley-Blackwell",
    number = "2",

    }

    TY - JOUR

    T1 - Estimation of the Rental Adjustment Process

    AU - Hendershott, Patric Henry

    AU - MacGregor, Bryan Duncan

    AU - Tse, R.

    PY - 2002

    Y1 - 2002

    N2 - Rental adjustment equations have been estimated for a quarter century. In the United States, models have used the deviation of the actual vacancy rate from the natural rate as the main explanatory variable, while in the United Kingdom, drivers of the demand for space have dominated the estimation, The recent papers of Hendershott (1996) and Hendershott, Lizieri and Matysiak (HLM 1999) fall into the former category. We reestimate these equations using alternative formulations and present evidence that changes in real interest rates were not capitalized into Sydney and London real land prices. We then derive a model incorporating supply and demand factors within an Error Correction framework and show how the U.S, and U.K, traditions are special cases of this more general formulation. We next estimate a two-equation variant with a separate vacancy rate equation using data from the City of London office market. This model allows calculation of the underlying price (rent) and income (employment) elasticities and explains the data marginally better than the HLM model. Importantly, our model passes standard modern econometric requirements for unit roots and cointegration.

    AB - Rental adjustment equations have been estimated for a quarter century. In the United States, models have used the deviation of the actual vacancy rate from the natural rate as the main explanatory variable, while in the United Kingdom, drivers of the demand for space have dominated the estimation, The recent papers of Hendershott (1996) and Hendershott, Lizieri and Matysiak (HLM 1999) fall into the former category. We reestimate these equations using alternative formulations and present evidence that changes in real interest rates were not capitalized into Sydney and London real land prices. We then derive a model incorporating supply and demand factors within an Error Correction framework and show how the U.S, and U.K, traditions are special cases of this more general formulation. We next estimate a two-equation variant with a separate vacancy rate equation using data from the City of London office market. This model allows calculation of the underlying price (rent) and income (employment) elasticities and explains the data marginally better than the HLM model. Importantly, our model passes standard modern econometric requirements for unit roots and cointegration.

    KW - LONDON OFFICE MARKET

    KW - NATURAL VACANCY RATE

    KW - BEHAVIOR

    U2 - 10.1111/1540-6229.00036

    DO - 10.1111/1540-6229.00036

    M3 - Article

    VL - 30

    SP - 165

    EP - 184

    JO - Real Estate Economics

    JF - Real Estate Economics

    SN - 1080-8620

    IS - 2

    ER -