Real estate market faces suboptimal construction decisions due to demand uncertainty.
The article explores how real estate supply adjusts to changes in demand in the commercial real estate market. It looks at how producers decide how much space to build based on demand certainty and uncertainty. The researchers found that when demand is certain, the supply of space is influenced by whether a shock is seen as mild or disastrous. In uncertain demand conditions, building based on pent-up demand is not the best choice.