INTRODUCTION Commercial property is generally divided into broad sectors: officers, shops and industrial.

The categories broadly relate to sectors of employment, officers serve business and professional services, administrative and government activity: industrial space is utilized by manufacturing industry and warehousing: industrial space is utilized by manufacturing industry and warehousing, and shops are the retail outlets for consumption activity. Offices are used more frequently than other sectors. This reflects three main factors, much of published research literature deals with office markets, offices are the most important investment sector by value. Finally, they offer the clearest illustration of many of the issues raised, including location, overbuilding, modeling and forecasting and internationalization. An understanding of the commercial property markets is important since there are many property related issues that affect every one and shapes the built environment. There are key issues in commercial property are that do affect property investment decisions in various sectors and these are divided into microeconomic, macro economic and financial issues: in micro economic issues the focus is on demand of commercial property, changing locational needs and response of land and property markets to the changing patterns: relevant contemporary issues include:
The large areas of vacant industrial properties and of vacant land in the centers of major

urban areas in the early 1980 s following closure of many manufacturing firms and factories. And also an expansion of high technology industrial activities along motorway corridors in the late 1970s and early 1980s.

.the pressures for the development of out of town shopping centres and retail warehouses and grocery superstores in the later 1980 s in some areas this led to major declines in city centre shopping and had environment impacts. . decentralization of many office using activities from city centers to sub urban, peripheral and satellite locations in the 1970 s and 1980 s and development of call centers in the 1990 s an understanding of market adjustments processes in commercial property markets is critical in analyzing these events. Demographic and economic changes create new patterns of demand for property but the response of developers, investors and land owners determines the spatial outcomes and affects the competitiveness and profitability of sectors of industry in a city, a region or a country. The macro themes investigated include the role of commercial property in the economy, the possibility of crowding out or overinvestment in property, property cycles and the need to model property market behavior: property booms capital. Turmoil of financial markets, property loans debt. Commercial property has different financial features when compared to other assets. Nonetheless, these are increasingly trends to intergrate property asset management with that of other financial assets. Other key trends include the growth of cross- border investment and the development of indirect investment vehicles. MAIN BODY RENT AND ITS VOTALITY

The role of rent as the price mechanism that balances supply and demand, achieving equilibrium that balances supply and demand, achieving equilibrium in four interlinked markets, user market, development market, financial asset market, land market rent may be viewed in different ways. Rent may be considered as the amount a business is able and willing to pay to occupy a particular site and building. On the other hand the owner of the property anticipates a return on capital invested that is competitive when compared to other possible investment assets and allowing for risks of ownership. In the user market, firms seek to occupy a stock building. The amount of space required will depend on outputs levels, profitability and asking rents, as outputs expands, firms seek more space and hence demand increases, raising rents in the absence of an increase in supply, however, if rents are high firms may seek to occupy space more intensively for example by reducing the floor space per worker or may substitute another factor of production for land and buildings. As a result the short run supply curve will tend to be inelastic. The relationship between the return on capital and rent determines the price or capital value of the property. This capital value acts as a signal for construction firms and property companies in the development market. When capital values (prices) are higher than the cost of provision, new stock will be constructed, altering the supply available in the user and financial assets markets. Figure on supply and demand in the user market. Changes in any of the four markets lead to changes in the others. An increase in demand in the user market raises rents. Other things being equal, this increases the price of property in the investment market. Higher prices may encourage developers to increase the supply of buildings

and persuade landowners to release land for that development. The resultant increase in the stock of buildings leads to downward pressure on rents in the user market restoring equilibrium. As with standard price theory, it is important to note that the principal causal of rents and pricesquantities adjust to changes in prices. It is conceptually possible to envisage the direction of the causality the other way round from quantities to prices, or for the simultaneous determination of both. However, the point is that, in competitive markets, it is the price that provides the key market information to the thousands, or even millions of, unrelated market players. Each agency then adjusts the quantities it wishes to buy or sell in relation to price, given its objective function- say, profit or utility maximization. Quantities could not play this role because it is impossible for everyone in an uncoordinated market to have a good knowledge of available quantities of supply and demand at any particular price level. Financial regulations may have restrictive effects on completion by allowing only certain types of financial institutions to be active in a market. Traditionally, many countries financial systems have been segmented, and foreign competition limited. If such traditional restriction constrain the flow of capital into property investment, then those that are allowed to invest can command a higher return from their property investment than would be determined competitively. The market prices of buildings will be lower than in a free market, because , implicitly, property investors have raised the capitalization rate above that in a free market. Lower prices will discourage new developments,and hence restrict office supply and raise rents. The effects of monopoly in property markets, therefore is similar to that in other markets- prices are higher for users and quantities supplied lowered. If such constrints are imposed on property markets through financial regulations, efficiency loss may be high.

Financial regulations may however have the opposite effect in the property market and cheapen funds, because regulations does not allow them to flow to their most remunerative activity. Pension funds and insurance companies in the UK for example had great difficulty in investing overseas prior to 1979, because of exchange rate controls. This would have encouraged them to invest in UK property, depressing returns from it, raising property valuations above their free market levels, and encouraging a greater than efficient supply of commercial property. Financial liberation in world markets have weakened any previous adverse effects that may have existed in property markets as a result of the influence of privileged financial institutions, although the scale of liberation has varied considerably between countries. When liberation occurs, competition forces risk- adjusted investor returns towards the long run interst rate, the effect will be to raise valuations. The resultant temporary capital gains may then help trigger off a property boom. The extra stock supply of offices will then push down rents in the user market. The end result, after feedback adjustments, should be lower office rents and a wider spread of investors in property. Development market In overall property market model, the development market is perhaps the most difficult to understand because it creates the flow of new offices into stock. When new offices are not required, the flow ceases and development does not occur. No development to replace obsolescent buildings is assumed in this model. However it is unlikely that replacement developments would have an independent effect on the market, but rather would respond to similar market forces to any need to accommodate increased user demand. Figure of development market

The development in this supply and demand model has no separate demand curve. Rational office users should be indifferent between new and existing buildings in the absence of technological improvement, so the same demand function is common to both the user and development markets. The influence of new buildings rents and available supply of offices takes place in the user market, where it is added to the existing stock in the following time period. On the models assumption, new office building takes place only when overall office demand exceeds supply in the existing stock. Development then occurs until the excess demand for offices is satisfied; at which time office building will cease- unless there are further demand increases. Once again the price mechanism, through changes in rent and development costs brings this about. This occurs based on replacement costs and also replacement costs with option price. The cob web theory The dynamics of market adjustments are affected by the theory of expectations adopted this can be illustrated by considering one potential explanation of the dynamic behavior of property markets the cob web theory of market adjustments. Figure of cob web theory process Demanders and suppliers, it is assumed, behave according to nave expectations. This means that they react only to the current price when fixing the quantities they wish to demand and supply in the following period respectively. Property users, investors and developers are likely to have different expectations of the process of adjustment from the myopic ones assumed in the cobweb process. If rents rise fast, for example, users might delay moving when they believe rents will shortly come down again. Similarly, at cycle peaks in property values, rational investors and developers are likely to have expectations of subsequent decline, which they price into their

schemes. This is not say that any of these agencies correctively predict the adjustment process of the market, but the dynamics are likely to be different from those suggested by a cob web process. Export base theory Growth in the demand for commercial property must be related to growth in economic activity. Growth in one business sector may induce growth in other associated industries. An expanding firm may purchase goods and services from other firms who themselves begin to expand. Higher wages lead to consumer spending on local goods and services leading to growth in the retail and leisure sectors. However, the impacts of one off growth in a sector dissipate over time. Export base theory attempts to provide a theoretical model for analysis of the impacts of growth on a region. The income (Y) of a region is equal to the sum of consumption (C), Taxation (T) and (S) savings which must be equal to the sum of wages (W), government transfers (G) and profits or interests earned outside the region ( p). Y=C+T+S Y=W+G+p Reference book The economics of commercial property markets, michael ball, colin lizieri and bryan d, Mac Gregor,1998, routledge publishers, newfetter lane, london pages 1-50.