Ch.1. Real estate space and asset markets.
Space market ( the market for the usage of (or right to use) real property (land and built space); also referred to as the real estate usage market or rental market. Demand side: individuals, households and firms that want to use space for either consumption of production purposes. Supply side: real estate owners who rent space to tenants. 1. Segmentation of space markets.
Both the demand and supply side are location and type specific. Therefore, real estate markets are highly segmented ( Space markets are local rather than national, and specialized around building usage categories.
Primary geographic units are metropolitan areas (or metropolitan statistical areas, MSAs) ✓ …show more content…

This is the output of the asset market and he input into the development industry.

Negative feedback loops = dampening mechanisms that tend to make a system self-regulating, preventing it from spiraling out of control. The principal negative feedback loop in the real estate system is the ability of the asset market to regulate the flow of financial capital to the development industry.

DiPasquale and Wheaton four-quadrant model.

The concept of long-run equilibrium involves allowing the markets sufficient time for the supply of built space to adjust to the demand.

Explanations to the four factor model:

- The northeast quadrant depicts the determination of rent in the space market.

Horizontal axis = physical stock of space

Vertical axis = rent

- The northwest quadrant depicts the asset market valuation process, relating the equilibrium property prices (horizontal axis) to the level of current rent (vertical axis).

The line represents the cap rate or OAR.

P* represents the property price

- The southwest quadrant depicts the operation of the development industry – physical asset production process. The relationship is between property prices and the annual amount of construction activity, including rehabilitation and redevelopment & new development

The outward slope of the construction function line represents rising long-run marginal costs in the