Impacts of information asymmetry and policy shock on rental and vacancy dynamics in retail property markets

Abstract

Rental and vacancy dynamics in real estate markets have elicited substantial scholarly attention. Previous studies primarily focused on offices and paid much less emphasis on retail properties. Moreover, nearly all research fails to explore the causes of differences in rental and vacancy adjustment speeds. To this end, retail property rental and vacancy dynamics (1991–2017) in tourist- and local-dominant areas in Hong Kong are examined using error correction models. This study is the first to use information asymmetry theory to explain rent/vacancy adjustment speed differentials in the retail property market and investigate the change of the adjustment speeds accruing to a policy shock. The results show that both supply and demand factors influence retail property rentals. Rental adjustment is quicker in tourist-dominant areas than in local-dominant counterparts, which agrees with information asymmetry theory. The implementation of the Individual Visit Scheme hastens the rental adjustment process of tourist-dominant areas but not that of local-dominant counterparts. Finally, policy implications (e.g., adjusting the one-size-fits-all maximum loan-to-value ratio policy and enhancing tourists’ accessibility to non-tourist-dominant areas) are discussed.