Time to completion liquidity in UK commercial real estate investment: 2000‐2008

Abstract

PurposeThe purpose of this paper is to provide new insights into asset liquidity in direct commercial real estate investment in the UK. Transaction data provided by four institutional investors of commercial real estate are used to test for changes in asset liquidity as manifest in recorded times from price agreement to deal completion. Median times to completion by stage of the transaction are presented alongside industry estimates.Design/methodology/approachStages of the transaction process are modelled and median times per stage calculated to track changes in asset liquidity over, and between, the two periods of the study (2000‐2002 and 2005‐2008). Real times to completion are considered in conjunction with estimated times compiled through interviews with senior level investment professionals. This paper applies the Wilcoxon rank‐sum test to determine the significance of variation in median times across the two study periods.FindingsThis paper provides empirical evidence that liquidity increased from 2000 to 2008. Median times from price agreement to completion decreased significantly (p=0.015) from 2000‐2002 to 2005‐2008, indicating an increase in asset liquidity in step with an overall increase in transaction volume. Furthermore, senior investment actors were found to persistently over‐estimate transaction efficiency and underestimate liquidity risk when acquiring and disposing of commercial properties.Research limitations/implicationsThis work offers new insights into the changing nature of asset liquidity over the last decade based on a limited number of transactions. Additional studies involving larger samples of transactions would provide still greater insight into commercial real estate liquidity dimensions.Practical implicationsThe paper presents evidence of pro‐cyclicality; asset liquidity varies positively with overall transaction volumes, and investment actors were found to overestimate asset liquidity suggesting a persistent underestimation of liquidity risk.Originality/valueThis paper addresses a gap in the extant literature offering real time on market‐time to completion observations alongside investor estimates. Median times to completion have been modelled and presented, together with time estimates provided by industry experts. Also, for first time in real estate research, median times to completion are shown to shorten significantly in‐line with increasing transaction volumes.