The Cyclic Behavior of the National Office Market

A review of the post WWII data on national office building construction and vacancy, reveals a recurrent ten-twelve year cycle. Specifying and estimating a structural econometric model for these series leads to several conclusions about this commercial real estate sector. First, the office market appears to "clear" quite slowly, and long-run expectations play an important role in market behavior. Second, supply is definitely more responsive to market conditions than demand. Finally, a six-year forecast suggests that the current over-supply in the market will not go away as fast as in the past.