Estimation of Bubbles in Seoul Office Price

Office sales prices in Seoul have recently been showing slight declines or increases despite successive interest rate hikes and raised the question of bubbles. Until now, bubble tests have mainly been applied to the housing market, and few studies have been conducted on the office market. This study focused on bubble tests according to different times and showed that growing rational bubbles could theoretically exist in efficient markets with the method of Undetermined Coefficient. The empirical analysis utilized autoregressive distributed lag-error correction model, which allows cointegration tests and long-run equilibrium models in spite of a few samples given limited time series data. Using 90 references of time series from 2001Q1 to 2023Q2 for Seoul, the results showed that bubble terms from 2006Q4 to 2008Q3 and from 2021Q3 to 2022Q3, when prices increased along with interest rate hikes, were significant. In addition, the terms from 2022Q4 have not been significant, which means that recent office prices has dissipated growing bubbles. These results could be used for future market analysis, investment, and policy.