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Supply constraints and search equilibrium in office markets

Marcato, G. ORCID: and Tong, M. (2022) Supply constraints and search equilibrium in office markets. Journal of Real Estate Finance and Economics. ISSN 1573-045X (In Press)

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We present a new conceptual framework to estimate office supply elasticity, where net business survival, physical and economic mismatch are used to identify frictional and structural vacancy. Alongside regulatory and geographical constraints, we also find an unobserved feature of supply elasticity linked to natural vacancy. Our results confirm that US Metropolitan Statistical Areas are generally supply inelastic and the search and matching process plays a significant role in supply dynamics. In the least inelastic markets, investors tend to be more flexible to respond to negative demand shocks. As a result, we observe a reduction in structural vacancy and a subsequent increase in cyclical vacancy given the slow short-term movement in absorption. These findings also shed light upon office market dynamics during the COVID-19 period.

Item Type:Article
Divisions:Henley Business School > Real Estate and Planning
Henley Business School > ICMA Centre
ID Code:109134

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