The Determinants of Rental Rates and Selling Prices of Office Spaces in Jakarta: A Macroeconometric Model Using VECM Approach

Abstract

This paper empirically examines the macroeconomic factors that affect the rental rates and selling prices of office space. The data are in the form of quarterly time series which are used for the period of 1996: 1 to 2012: 4 period. In addition, quantitative methods in the form of Vector Error Correction Model (VECM) are also used in this study. The results showed that there is a long-term relationship between macroeconomic variables with the rental rate and selling prices of office space. IRF and FEVD showed that the rental rates and selling prices responded permanently to the shocks that occured on macroeconomic variables. Moreover, the rental rate is predominantly influenced by the rental rate followed by the service sector employment, the selling price, exchange rate, inflation, interest rates and economic growth. Conversely, the selling price is predominantly influenced by the rental rate followed by service sector employment, the exchange rate, economic growth, the selling price, infllation and interest rates. Investors and developers can use the results of this study as one of approaches of market analysis, especially for office market analysis.

Determinants of office rents: the role of physical and locational characteristics in Colombo

“…, 1998; Brennan et al. , 1984; Clapp, 1980a, b; Dunse and Jones, 1998; Slade, 2000; Fuerst, 2007; Öven and Pekdemir, 2004, 2006; Ozus, 2009; Simon et al. , 2015; Silva, 2016; Tomonidie, 2016; Bera and Uyar, 2019).…”

“…When reviewing various studies conducted over time, Pekdemir (2004, 2006) categorized determinants into four categories: econometric factors, building characteristics, locational features, and contract terms. Several studies conducted in diverse contexts have highlighted the influences of building characteristics and locational features on office rents (for example, Mills, 1992;Bollinger et al, 1998;Brennan et al, 1984;Clapp, 1980a, b;Dunse and Jones, 1998;Slade, 2000;Fuerst, 2007;Pekdemir, 2004, 2006;Ozus, 2009;Simon et al, 2015;Silva, 2016;Tomonidie, 2016;Bera and Uyar, 2019). In terms of quality, commercial office properties are commonly grouped into different classes, such as A, B, C and D (Nase et al, 2013), with Class A being considered the best, and class D the least desirable (Glascock et al, 1990).…”

An analysis of the determinants of office real estate price modelling in Nigeria: using a Delphi approach

“…Generally, variables affecting real estate are divided into micro variables synonymous with supply factors and macroeconomic variables synonymous with demand factors (Zawir Simon et al. , 2015).…”

“…In modelling real estate price generally, many researchers have verified micro variables and hence, physical features of office buildings, as the defining variable in their rent cum price determination (Öven and Pekdemir, 2006a); thus, it is a fundamental price determination criteria (Chiarazzo et al. , 2014; Zawir Simon et al. , 2015).…”

Dynamics and Asymmetric Rent Adjustments in the Office Market in Warsaw

“…Using office market data from Jakarta spanning from 1996 to 2012 Simon, Achsani, Manurung, and Sembel explored relations between rents and several macroeconomic variables. Using the VECM model they found that rental rates responded to services sector employment, exchange rate and economic growth (Simon et al, 2015). Interesting empirical evidence on the nature of rent determinants and rent adjustments comes from office markets in Hong Kong (Chau & Wong, 2016) and Singapore (Ho et al, 2014).…”