Time-Series Characteristics and Long-Run Equilibrium for Major Australian Office Markets

While much attention has focused on the modeling of office property markets, little emphasis has been put on distinguishing between permanent and temporary effects. This article attempts to address this issue in the context of the rental adjustment mechanism and the demand–employment relationship for major Australian central business district office markets. It is shown that, by allowing the natural vacancy rate and the work–space ratio to be endogenously determined, it offers richer model specifications that permit a partitioning between long-run and short-run influences. This is achieved by employing econometric techniques that examine the stochastic behavior of time series data. It is found that, while equilibrium relationships exist (between the vacancy rate and rent, and demand and employment), other macroeconomic variables are found to be relevant cyclical determinants.