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Examining investor perceptions of obsolescence and value through a behavioural economics lens

M. Gordon Brown (Department of Real Estate Management & Development, Eindhoven University of Technology, Eindhoven, The Netherlands)
Tjibbe Teernstra (Deloitte Real Estate Advisory, Amsterdam, The Netherlands)

Journal of European Real Estate Research

ISSN: 1753-9269

Article publication date: 24 October 2008




The purpose of this paper is to analyze patterns and causes of structural vacancy in Dutch office buildings focusing on investors perceptions in the context of behavioural economics issues.


The location and typological characteristics of structurally vacant office buildings were identified using data from the first quarter of 2007 of the Jones Lang LaSalle office supply database. Structured interviews of those investors responsible for decisions about structurally vacant office buildings in their portfolio were conducted and the results analyzed.


The analysis finds that structural vacancy is not distributed but concentrated more in distinct smaller buildings owned by non‐institutional investors and that these are found more often in office parks. It also shows that irrational optimism about the office market combined with overconfidence and the disposition effect limit the rationality of investor decisions about structurally vacant office buildings.

Research limitations/implications

Further research focusing on behavioural economics factors in real estate could improve selection and sampling and the construction of questions.

Practical implications

Because they appear to understand functional obsolescence least of all, real estate investors would benefit from knowledge about diagnosing it.


Most research investigating behavioural economics in real estate has focused on the work of professional valuers, appraisers. This may be the first paper to show that real estate investors exhibit decision patterns consistent with beliefs and preferences described in behavioural economics and finance.



Gordon Brown, M. and Teernstra, T. (2008), "Examining investor perceptions of obsolescence and value through a behavioural economics lens", Journal of European Real Estate Research, Vol. 1 No. 3, pp. 267-290.



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

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