Glossary

Four-Quadrant Model (DiPasquale-Wheaton Model)

Also known as: DiPasquale-Wheaton model, space market-asset market model

An economic framework, developed by DiPasquale and Wheaton, that links the physical (space) market and the financial (asset) market for real estate through four interconnected quadrants — rent determination, asset valuation via cap rates, construction, and stock adjustment — showing how a shock in one market transmits through to the others.

The model's power lies in making explicit that real estate is simultaneously a consumption good, priced in the physical space market where rents are set by supply (stock) and demand (occupied space), and a capital asset, priced in the financial market where the cap rate that investors apply to that rent stream is set by the broader cost of capital and required returns. A change in interest rates, for example, first appears in the asset-market quadrant (cap rates move), which then changes the ratio of asset price to construction cost and therefore the incentive to build (the construction quadrant), which eventually feeds back into the physical-market stock and rents years later given construction lag times — explaining why capital-market shocks and physical-market outcomes are connected but arrive with a substantial lag. Practitioners use the four-quadrant framework primarily as a diagnostic and pedagogical tool for reasoning through where a market sits in its cycle and how a given shock (rate move, demand shift, construction cost spike) will propagate, rather than as a directly estimable forecasting model, since real-world data and lags make precise quadrant-by-quadrant calibration difficult.