Adjustment in Property Space Markets: Estimates from the Stockholm Office Market

Peter Englund, Ake Gunnelin, Patric H. Hendershott, Bo Soderberg

NBER Working Paper No. 11345
Issued in May 2005
NBER Program(s):   AP

Markets for property space adjust only gradually because tenants are constrained by long-term leases and landlords and tenants face transactions and information costs. Not only do rents adjust slowly, but space occupancy may differ from demand at current rent, giving rise to "hidden vacancies". We estimate the joint dynamics of office rents and vacancies using an error-correction model using a new lease rent series for Stockholm offices 1977--2002 estimated on 2,500 leases. It takes 5-10 years for the market to adjust to a shock. In a model simulation of a positive employment shock open vacancies fall from the natural level of 7 percent to below 4 percent, while hidden vacancies increase by about as much. Most of the variation in hidden vacancies over time is explained by the difference between demand at current and average rent on existing leases, which we calculate using data on contract lease length.

download in pdf format
   (217 K)

email paper

This paper is available as PDF (217 K) or via email.

This paper was revised on July 14, 2006

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11345

Published: Peter Englund & Åke Gunnelin & Patric H. Hendershott & Bo Söderberg, 2008. "Adjustment in Property Space Markets: Taking Long-Term Leases and Transaction Costs Seriously," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(1), pages 81-109, 03.

Users who downloaded this paper also downloaded these:
Durbin and Kenny Seasonal Adjustment When the Seasonal Component Behaves Neither Purely Multiplicatively nor Purely Additively
Pierce Seasonal Adjustment When Both Deterministic and Stochastic Seasonality are Present
Moore Seasonal Adjustment of the Income and Product Series
Diller Methods of Seasonal Adjustment
Mitchell Administrative Costs in Public and Private Retirement Systems
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us