Commercial Real Estate | 3rd Edition

Chapter 1, Problem 15QP

Problem

Recall that we said in section 1.1.2 that the average rent in downtown Cincinnati for class A office buildings in the mid-1980s was around $16/SF, being charged in about a dozen skyscrapers totaling about 5 million SF. By 2010 the class A office stock in downtown Cincinnati had expanded to some 18 buildings totaling over 8 million SF, and the average asking rent was $19.50/SF (according to CoStar Group). If the Consumer Price Index grew from about 110 in the mid/late 1980s to about 218 in 2010, then what does this history suggest about the shape of the long-run supply function in downtown Cincinnati office space, as depicted in Exhibit 1-2 and discussed in section 1.1.6? What would the $19.50/SF rent of 2010 be expressed in mid-1980s dollars (when rents were around $16/SF in those dollars)?