Ke, Q; White, M; (2013) A Tale of Two Chinese Cities: The Dynamics of Beijing and Shanghai Office Markets. Journal of Real Estate Portfolio Management , 19 (1) 31 - 47.

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Abstract

Executive Summary. We analyze office rental pricing and adjustment processes in two Chinese cities: Beijing and Shanghai. The study period covers 17 years from 1993 to 2009. We find that rents in the two cities responds to demand and supply variables in the long-run model. In the short-run model, the error correction term is correctly signed and statistically significant in all model scenarios; however, adjustment is slower than other major office centers. In the short-run models, the rental adjustment process in Shanghai is affected by both supply and demand; in Beijing, only the vacancy rate has significant impact on rental adjustment. We further test the differences in vacancy rates in the two cities and find that individual city components are statistically significant and different from each other. Shanghai has a lower price elasticity and higher income elasticity than Beijing.

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