Segmenting the Office Market and Predicting Urban Office Rent

Abstract

In this paper a theoretical framework is presented which can be used to understand and predict urban office rent. The proposed theoretical framework recognizes different segments in the office market and makes a distinction between different types of organizations and their preferred office characteristics. Urban office rent is influenced by building specific characteristics, location specific characteristics and internal and external economic conditions. Provisional analysis, for the Dutch context, shows low price-quality elasticity for building specific characteristics of urban offices. Furthermore it is not correct to approach the office market as one big single market; there are sound theoretical arguments for segmenting the office market into distinct submarkets. Office markets are traditionally segmented on base of location, size etc. An office building should support and enhance activities performed by organizations and the fitness for use depends on a fit between building and organization. Different types of organizations have different office requirements and will value building characteristics differently. It is not only the supply (the available office buildings) that should be segmented but also the demand side (organizations). In addition the author addresses the following questions: - On which location, building and organization characteristics should a meaningful segmentation of office buildings and organizations be based? - How does segmenting the office market help to understand and predict office rent and capital value?