Long-run equilibrium for the Greater Paris office market and short-run adjustments
Résumé
While there is an abundant literature on office market modelling, only few studies focus on the Greater Paris case, which stands as the largest office market in Europe. This article aims at contributing to the understanding of the Parisian rental office market underlying mechanisms. We use cointegration techniques including Gregory–Hansen structural break approach to model the market over the period 1990–2013. We employ a two-stage error correction framework to identify the long-run equilibrium rent as well as the short-run adjustments in rent, vacancy rate and stock. The findings show that once allowances are made for a regime shift in the long-run rent relationship, the specified model explains relatively well the Parisian market. The long-run results confirm the role of employment and total stock as long-run determinants of rental values. Yet, in the short-run, due to the inertia arising from the intrinsic features of the office market, lagged dependent variables appear to be drifting rents away from their equilibrium.