OFFICE SPACE MARKET DYNAMICS AND REAL ESTATE CYCLES

Abstract

The cyclic nature of real estate market is generally recognised and has received much attention. Especially, rent adjustments due to changing market conditions have been extensively studied. Quite a few authors have modelled rent adjustments as a function of (lagged) vacancy rates and others employed economic indicators, such as domestic and regional product, and employment. This paper analyses office space market dynamics throughout the different phases of the real estate cycle. Since 2001, the Amsterdam office market is considered a replacement market, characterised by a stable or decreasing stock in use. However, not all the urban areas in Amsterdam seem to be suffering to the same extent from the zero growth, or decrease, of the stock in use. In some areas, an almost direct response on the overall deteriorating market conditions was observed, which expressed itself in increased vacancy rates, higher supply-demand ratios and decreasing real rent levels. On the contrary, in other areas a lagged response to the deteriorating market conditions was observed. Furthermore, the volatility of the observed cycles for various urban areas within Amsterdam differs, which may indicate extreme dependency on local demand and supply flows. The research does not only focus on real rent adjustments, but does also take into account the spatial distribution of transactions, the share of the various sectors and the average size of transactions throughout the different phases of the cycle. In addition, the analysis is performed on the scale of the whole city and for specific urban areas.