Equilibrium time on the market (ETOM) for commercial real estate in the UK

Time on the market (TOM) has been widely tested in the US real estate literature using listing and selling data of houses captured in the multiple listing services (MLSs). Unfortunately in the UK there are no MLSs so it is not possible to undertake similar analyses. The approach adopted in this paper differs from traditional TOM analyses in that it focuses on the speed or time the market takes to correct for information differences between open market valuations and traded prices. In this context the paper introduces the concept of equilibrium time on the market (ETOM). The study therefore adopts a different approach to estimating TOM and in addition also examines the phenomenon within the UK commercial real estate sector. Based on a simple present value model, the time taken for the difference between an appraiser's estimate of open market value and known selling prices define our time on the market under equilibrium market conditions. Using the annualised UK Investment Property Databank all‐property total return index for a sample period of 17 years between 1983 and 1999, the average ETOM was estimated to be 8.4 months. This figure, however, varied and depended on market conditions.