Assume that the market demand for retail space suffers a permanent negative shock. Focusing on this specific segment of the real estate market: a) How will this affect the equilibrium rental price of retail space in the short run? State your assumptions and illustrate. b) By means of the DiPasquale and Wheaton model: describe what will be the long run equilibrium effect of this negative shock in demand on the real estate system. Illustrate and explain your findings. c) If you were to invest in this specific market, which factors would be important to you when deciding on the appropriate capitalization rate? Explain

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a ShortRun Effect on Equilibrium Rental Price Assumptions The negative shock to the market demand for retail space leads to a decrease in demand Supply remains constant in the short run The market adj... View the full answer