The Economics of Commercial Property Markets

The Economics of Commercial Property Markets, Michael Ball, Colin Lizieri and Bryan MacGregor, London: Routledge, 1998, 402 pages. Reviewed by: Elaine M. Worzala, Colorado State University. The Economics of Commercial Property Markets is written by three British academics: Michael Ball, Colin Lizieri and Bryan MacGregor. The first of its kind, this book attempts to provide a comprehensive review of economic theory in relation to commercial real estate markets, drawing on international research and empirical examples. The book is distinct in coverage from other texts in the field as it attempts to examine the macroeconomic, microeconomic and financial economic aspects of the real estate market and to explore the linkages among these fields. Most existing texts neglect one or more of these disciplines and few focus directly on the commercial real estate marketplace. A key strength of the text is the authors' familiarity with each area and their ability to link the material together in a comprehensive format. The book should prove particularly useful for graduate real estate courses with its focus on commercial real estate, including office, industrial and retail markets. Each chapter critically reviews the existing literature and the authors then illustrate the economic theory with empirical examples drawn from the United Kingdom, the United States, mainland Europe and elsewhere. After the introductory chapter, the book contains thirteen chapters that are split evenly into the three different sections. The first section (Chapters 2-5) concentrates on the microeconomic aspects of the real estate marketplace. In the opening chapter, the authors set out a model for commercial real estate markets, developing an equilibrium-- based quadrant model in a similar vein to the Fisher, Hudson-Wilson and Wurtzebach (1993) model but with the addition of a land market component to the user (space), development and investment market. The chapter considers adjustment processes, expectations and the likelihood of equilibrium. The next chapter examines demand for space and its impact on land markets. The authors examine changes to the nature of demand for space and spatial variations in demand, drawing from the new industrial economics literature and developments in agglomeration theory. Starting with the traditional Alonso location model, the authors extend the model to a discussion of market efficiency and the impact of public sector intervention. This explicit consideration of planning and taxation is often missing in the traditional real estate textbooks. The third chapter in this section examines the location of real estate. Conventional location theory models are reviewed for industrial, retail and office property types. However, the authors then reference contemporary research that attempts to recast the traditional location models in the light of changing business practices. The final chapter in this section, contains a unique and important review of research that focuses on the institutional constraints typically found in most real estate markets, notably structure and agency theory. Such theories (and more mainstream economic theories of transaction cost minimization and information constraints) suggest that the outcomes of economic forces may depend heavily on local market structures and therefore, they should not be dealt with in a purely deterministic fashion. The second section focuses on the macroeconomic aspects of a real estate market (Chapters 6-9). Chapter 6 seeks to link key elements of macroeconomic theory to the property market. In particular, the authors link theories of fixed investment and business cycles to real estate development. In Chapter 7, the authors expand these ideas and examine the long-run behavior of real estate (primarily in the U.K.) both as an investment good and in relation to the efficient allocation of resources in an economy. Primarily new themes in real estate research, these chapters contain numerous references to the recent work of the authors. …