Editor's Choice
  • we investigate uncreative destruction in the office market in Poland
  • we explain this phenomenon with the Cobb-Douglas production function and an accounting model
  • low interest rates make financial costs low and allow market entrants to lower rents
  • lower rents allow to fight for tenants
  • high competiton increases the depreciation of older buildings
Low interest rates were introduced in the global economy to support the weak economic growth that followed the global financial crisis. However, in the real estate sector, low interest rates usually lead to a boom in investment and prices. However, this boom is not spread throughout the economy, but rather concentrated in major cities. We demonstrate this phenomenon with the example of the office market in Warsaw (Poland). While it would be beneficial for the Polish economy to develop office space in smaller cities that have an insufficient supply of modern office space, investors have focused mainly on the capital. This has not only led to an increase in the cost of building land and construction, but has also pushed some relatively new existing office buildings out of the market. We call such behaviour uncreative destruction and explain why it was possible.
We would like to thank prof. Iwona Foryś for a discussion about the paper during the XXX Polish Real Estate Scientific Society Conference in 2023. We also would like to thank the Editor and two anonymous Reviewers for valuable comments, especially those concerning the importance of ESG (Environmental, Social and Governance) and remote work in regards to the demand and supply of office space.
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