RE 618 / Fin 618 – Real Estate Investment Analysis
Introduction to Commercial Property Markets – Practice Problems Solutions
Dr. Stanley D. Longhofer
1) Explain briefly how rents and vacancies will respond to a sudden decrease in demand
in a specific real estate market (e.g., downtown loft apartments). Make sure you
discuss both short-run and long-run effects. Use a supply-demand graph to illustrate
these effects.
A decrease in demand causes the demand curve to shift to the left. In the short run,
rents will fall (from p1 to p2) and vacancies will increase (from v1 to v2).
In the long run, property owners will remove space from the market, perhaps
converting it to other uses or demolishing obsolete units to redevelop the space at
some future time. This will cause the supply curve to shift to the left, raising rents
(to pLR) and decreasing vacancies (to vLR).
2) In class we said that the most important characteristic of real estate is its fixed
location. Explain briefly why this is true and some of its implications for real estate
space markets.
The key characteristics I’m looking for are uniqueness, interdependency of land uses,
scarcity, and high search and information gathering costs.
3) Name three distinct types of commercial real estate in which you might invest.
4) Commercial real estate is typically categorized into classes based on a number of
factors. Describe briefly a few factors that would distinguish Class A space from
Class B space.
5) Name one building in Wichita you would consider a Class A building.
Short run Long run
D2
D1
p1
p2
S1
v1
v2
D2
S1
S2
v2
vLR
p2
pLR
QQ
P
1
P
