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Supply Adjustments to Demand Shocks in the Commercial Real Estate Market
Author(s) -
Lentz George H.,
Tse K.S. Maurice
Publication year - 1999
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00773
Subject(s) - supply and demand , economics , certainty , real estate , demand shock , microeconomics , space (punctuation) , supply shock , supply side , derived demand , production (economics) , supply , cost approach , demand curve , real estate development , monetary economics , finance , computer science , monetary policy , philosophy , epistemology , operating system
This paper contributes a theoretical investigation of real estate supply adjustments in the commercial real estate market. Simple theoretical linkages between the goods market (the demand side) and the space market (the supply side) are developed and then used to explain the optimal supply decisions of space producers. Propositions relating to how space production decisions are made under conditions of demand certainty, demand uncertainty and free entry are derived from optimization models. Under demand certainty, the adjustment of space supply is shown to be affected by whether an exogenous shock is perceived as mild or disastrous. Under demand uncertainty, construction based on pent‐up demand is shown to be suboptimal.