Commercial Property Market Research Articles

Effects of International Investments on the Finnish Commercial Real Estate Market

The Finnish commercial property market has internationalized rapidly, with nearly80 foreign property investors participating in the market today. This paper exploresthrough interviews of domestic investors how the entry of international propertyinvestors has affected the Finnish commercial property market. The results indicatethat the internationalization has had a profound effect on the dynamics of the Finnishmarket in terms of investor strategies and ways of action, market liquidity, and size,as well as market transparency and the availability of real estate-related services.These changes have together contributed to the maturity and attractiveness of theFinnish commercial property market.

Investment Styles and Performance in the Australian Unlisted Wholesale Property Fund Market

Unlisted wholesale property funds are an established property investment product which offers institutional investors an attractive approach for exposure to the Australian commercial property market. This research benchmarks the investment styles of the property funds covered by the Mercers unlisted property fund index with reference to IPD/PCA Property Investor Digest indices over the 2001–2009 period.Based primarily on tracking error analysis, this research identified a range of structured and active investment styles in the selected property funds. This appears to be linked to debt levels and to be sector specific with the relatively highly geared office property funds being the most affected by changes in property market conditions.Further research is recommended as to the impact of debt funding on investment performance measures. However, this research shows how investment evaluation techniques can be a valuable decision making tool for an astute investment into unlisted wholesale property funds.

Counteracting Path Dependencies: ‘Rational’ Investment Decisions in the Globalising Commercial Property Market

The commercial property market is transforming from a locally embedded industry to an international one. In the neverending search for opportunities, an increasing number of investors are turning their attention to new, distant, and opaque property markets. Still largely unknown to the investors, such markets generate much uncertainty for decision making. Investors seek to overcome this by adopting new decision-making strategies based on economic models promising transparent optimum solutions. Using global office investors as an example, we show that these actors attempt to generate know-how systematically, to take better ‘rational’ decisions rooted in neoclassical economy and based on key performance indicators. However, we also highlight that the process of rational decision making contains some cracks in its edifice, thus providing space for path dependencies to intrude.

Social Production of Desirable Space: An Exploration of the Practice and Role of Property Agents in the UK Commercial Property Market

The design, construction, and occupation of a sustainable built environment have been the focus of much research over recent years. Most notably, the focus has been on the modelling and prediction of energy use and carbon production during the design process together with the monitoring of carbon emissions during occupation. A second focus has highlighted the influence of occupant behaviour on carbon emissions. However, this overlooks the complex social interactions which together produce the built environment. There is room for seeking to unpack the social production of (un)sustainable buildings from design through construction to commissioning. These buildings significantly set the agenda for the behaviour of occupants whatever their level of carbon consciousness. In this paper we use the practices and role of property agents in the commercial property market as a window on the social production of (un)sustainable buildings.

REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate

Using REIT return data, bond data, and property holding data, the authors construct property market segment-specific indices of asset returns. The authors show that these <i>pure-play</i> indices can be employed to make pure, targeted investments in the commercial real estate market while retaining the liquidity, transparency, and pricing efficiency benefits of the well-developed public market in REITs. These pure-play indices compare favorably with existing property market return indices, displaying volatilities similar to transaction-based indices, such as the Moody’s/REAL Commercial Property Price Index, but tending to lead the private market in time. The pure-play indices can be generated at a daily frequency without significant noise and at various levels of market segment granularity and, notably, have led the transactions-based direct property market indices during the recent market downturn. The authors’ findings suggest that the REIT-based pure-play indices may provide a unique, new information source about the commercial property market, as well as a unique capability to facilitate targeted investments, construct hedges, and potentially support derivatives trading. <b>TOPICS:</b>In markets, real estate, options

DIVERSIFICATION BENEFITS IN THE FINNISH COMMERCIAL PROPERTY MARKET

The Finnish commercial property market internationalised rapidly in the beginning of the 21st century. According to the portfolio theory and previous research on international property investments, the main motivation factor driving international real estate investments is the possibility to reach diversification benefits. The paper discusses the diversification benefits offered by the Finnish property market in its early years of internationalisation. As international real estate investors in the Finnish property market include investors with both real estate only, as well as mixed‐asset portfolios, the diversification benefits are studied both in terms of a Finnish mixed-asset portfolio, as well as international real estate portfolio. Santruka XXI a. pradžioje Suomijos komercinio nekilnojamojo turto rinkoje sparčiai vyko tarptautiniai procesai. Remiantis portfelio teorija ir ankstesniais tyrimais apie tarptautines investicijas i nekilnojamaji turta, pag rindinis veiksnys, kuris skatina tarptautines nekilnojamojo turto investicijas ‐ tai galimybe gauti diversifi kacijos teikiama nauda. Darbe aptariama, kokia nauda siūle Suomijos nekilnojamojo turto rinka ankstyvaisiais internacionalizacijos metais. Kadangi kai kurie Suomijos nekilnojamojo turto rinkoje veikiantys tarptautiniai nekilnojamojo turto investuotojai užsiima tik nekilnojamuoju turtu, o yra ir tokiu, kurie turi mišraus turto portfelius, diversifi kacijos nauda nagrinejama ir pagal Suomijos mišraus turto portfeli, ir pagal tarptautini nekilnojamojo turto portfeli.

The significance of Chinese commercial property in an Asian property portfolio

PurposeInternational investors have shown considerable recent interest regarding property investment in China via both direct and indirect property. The purpose of this paper is to assess the significance and performance of the China commercial property market compared to six developed and emerging commercial property markets in Asia.Design/methodology/approachThis paper analyses the performance of commercial property in China over 1998‐2007 for both direct and indirect property. Risk‐adjusted performance analysis is used to assess the added value of China commercial property in a pan‐Asia portfolio, with the portfolio diversification benefits of China commercial property also assessed. Sub‐period analyses are also used to assess the dynamics of China commercial property.FindingsThis paper finds that China commercial property has shown significantly enhanced performance and diversification benefits in recent years. In a pan‐Asia property fund context, there are clear diversification benefits provided by China commercial property, with these benefits also being evident in the other Asian property markets. The findings highlight the benefits of a pan‐Asia property investment strategy by international property investors, as well as the key benefits and added‐value of including China commercial property in this pan‐Asia property investment strategy.Originality/valuePrevious empirical research into the China commercial property markets has been very limited. This paper rigorously assesses the role of China commercial property in a pan‐Asia property portfolio context. Given the increasing interest by the leading international property investors regarding investing in China commercial property, this research enables more informed and practical investment decision‐making regarding the role of both direct and indirect China commercial property as part of a pan‐Asia institutional property investment strategy.

Brokerage Intermediation in the Commercial Property Market

This study is one of the first to investigate brokerageintermediation effects in the income-producing commercialproperty market. Employing multifamily sales data from theAtlanta and Phoenix markets under alternative brokeragespecifications, little evidence to support the existence ofsystematic, differential transaction pricing outcomes due to thepresence of brokers is found. The results suggest that theexistence of brokerage intermediation effects is likely minimalin commercial markets that are relatively transparent, that haveparticipants who are knowledgeable, and where value and priceare typically determined based on a property's income-generatingcapacity.

Determining the Criteria for the Classification of Purpose Built Office Buildings in Malaysia

The Malaysia property market is deficient of key indicators to make an objective assessment of the market situations. In the effort to monitor the commercial property market performance, it would be useful to develop an indicator that will be useful for the construction of property indices. As such, to develop such indices for commercial properties, it is necessary to assess the performance of each office building through a classification framework. This paper highlights the identification of the criteria to be adopted in the classification of the purpose built office buildings in Malaysia. Through the investigation of the local and international practices as well as the literature on office building classification, a set of criteria was selected for local adoption. In arriving at the final set of criteria, a series of expert panel group discussions were held. This paper highlights the findings of the initial investigation of the identified criteria and the expert panel discussions held in an attempt to arrive at the final classification framework.

Retrofitting commercial office buildings for sustainability: tenants' perspectives

PurposeBuildings, which account for approximately half of all annual energy and greenhouse gas emissions, are an important target area for any strategy addressing climate change. Whilst new commercial buildings increasingly address sustainability considerations, incorporating green technology in the refurbishment process of older buildings presents many technical, financial and social challenges. This paper aims to explore the social dimension, focusing on the perspectives of commercial office building tenants.Design/methodology/approachSemi‐structured in‐depth interviews were conducted with seven residents and neighbours of the case‐study building undergoing green refurbishment in Melbourne, Australia. Responses were analysed using a thematic approach, identifying categories, themes and patterns.FindingsCommercial property tenants are on a journey to sustainability. Tenants are interested and willing to engage in discussions about sustainability initiatives, but the process, costs and benefits need to be clear.Research limitations/implicationsThe findings, while limited by non‐random sampling and small sample size, highlight that the commercial property market is interested in learning about sustainability in the built environment.Practical implicationsThe findings highlight the importance of developing a strong business case and transition plan for sustainability in commercial buildings. As sustainable buildings become mainstream, tenants predicted the emergence of a “non‐sustainability discount” for residing in buildings without sustainable features.Originality/valueThis research offers a beginning point for understanding the difficulty of integrating green technology in older commercial buildings. Tenants currently have limited understandings of technology and potential building performance outcomes, which ultimately could impede the implementation of sustainable initiatives in older buildings.

The greening of commercial leases

PurposeThis paper seeks to consider how policy changes may drive a change in leasing practices, in order to reduce environmental impact (particularly carbon dioxide emissions) from the commercial building stock.Design/methodology/approachIn many countries, including the UK, environmental policy (particularly on carbon dioxide emissions from energy use) is beginning to impact on the commercial property market. This paper explores barriers to improved performance, two models for greening leases (a light green and dark green approach) based on work by the authors from Cardiff University and the Australian government, as well as how tenanted buildings can be managed “more greenly”. It then explores how green leases may penetrate the market.FindingsThe conventional relationship between the landlord (as building owner) and tenant (as occupier) largely neglects environmental considerations. However, change may be rapid, disruptive and challenging.Originality/valueThe paper lays out some of the issues, solutions, and pathways for the commercial property industry.

Agreement and Accuracy in Consensus Forecasts of the UK Commercial Property Market

Property forecasts are an integral part of the property investment process at the strategic, tactical and individual asset levels. This study investigates the nature, extent and patterns of disagreement and uncertainty in the forecasts of UK property investors and their advisors. In this paper, the Investment Property Forum's consensus forecasts from 1999–2004 are analysed. The study finds that property forecasting organizations tend to exhibit the characteristics of a consensus, potentially indicating a herding bias among forecasting organizations. Given high levels of agreement and high levels of error in the consensus forecasts, uncertainty in the property forecasts of the individual organizations seem to be primarily generated by common factors rather than by the individual forecasting organization itself. This is not a unique feature of property market forecasters as non‐property forecasters display similar patterns. A key source of uncertainty in the property market forecasts of capital and total returns seems to have been due to problems of forecasting yield shifts. The analysis suggests that there are inefficiencies in property market forecasts.

Sport and the Local Economy: The Effects of Stadia Development on the Commercial Property Market

The use of sports stadia for economic development and regeneration has gained increasingly credibility in recent years, both academically and in terms of UK urban policy. However, evidence to support the effectiveness of stadia for these purposes is highly variable. This paper uses a comparative case study of the Millennium Stadium and the City of Manchester Stadium to examine the effects of stadia development on the commercial property market, an area of research that has received little attention in the literature. It uses the expert opinion of professionals working in real estate, together with the experience of key stakeholders in Manchester and Cardiff to provide empirical evidence that stadia can create tangible and intangible impacts on the commercial property market, but that these are variable between different sectors. It concludes by arguing the need for further research on the role of stadia in the regeneration process if the impacts of these developments are to be maximised in the future.

Loft Conversion and Gentrification in London: From Industrial to Postindustrial Land Use

It is argued that many major Western cities have seen the conversion of centrally located commercial and industrial property to residential uses in recent years. This is seen as part of a wider process of change from industrial to postindustrial land uses and is a physical counterpart of the economic and occupational class transformation of these cities towards the growth of professional and managerial workers working in financial, business, and creative services. The paper focuses on loft conversions in Clerkenwell, adjacent to the City of London which are shown to be initiated by changes in the commercial property market, particularly the rise and fall of the secondary office market and the need to find alternative uses for commercial property. The apartments have been marketed in terms of their architectural distinction, their centrality and the social attributes of city-centre living. Their residents are professional and managerial workers with a strong orientation towards centrality, many of whom see themselves as pioneers of a new form of city-centre living.

Modelling the Commercial Property Market: An Empirical Study of the Singapore Office Market

This paper disentangles the complexities of the commercial real estate market and provides a clear structure to understand the key determinants driving property market performance. There is a preference for using GDP, unemployment rate, and office (FIRE) employment as the main determinants of the space market (demand side); office floor stock, construction orders and vacancy rate (especially in the United States) as the property market (supply side) determinants in the office market. A regression model for Singapore’s office property market for the period from June 1992 to December 2005 was constructed. The office rent equation was able to account for 72 per cent of variation in gross rent for the period June 1992 to December 2005. Changes in previous year vacancy rates, contemporaneous construction costs, prime lending rate (lagged 6 months) and contemporaneous office sector employment were identified as the key determinants in explaining the variation in office rents in the Central Region of Singapore.

Evidence on Rationality in Commercial Property Markets: An Interpretation and Critique

Periodic sharp sustained increases and then reversals in asset prices lead many to posit irrational price bubbles. The general case for irrationality is that real asset prices simply have moved too much given the future real cash flows the assets are reasonably likely to produce. A specific argument for property is that observed mean reversion in real cash flows has not been reflected in investor valuations, resulting in asset values being too high when real cash flows were high and vice versa. This study interprets, critiques and extends existing analyses of movements in real commercial property prices during the late 1980s and early 1990s.

資産運用物件の価格変化における期待形成の分析

資産運用物件の価格変化における期待形成の分析

Expert judgement in the processes of commercial property market forecasting

In this paper, we investigate the role of judgement in the formation of forecasts in commercial property markets. The investigation is based on interview surveys with the majority of UK forecast producers, who are using a range of inputs and data sets to form models to predict an array of variables for a range of locations. The findings suggest that forecasts need to be acceptable to their users (and purchasers) and consequently forecasters generally have incentives to avoid presenting contentious or conspicuous forecasts. Where extreme forecasts are generated by a model, forecasters often engage in ‘self‐censorship’ or are ‘censored’ following in‐house consultation. It is concluded that the forecasting process is significantly more complex than merely carrying out econometric modelling, forecasts are mediated and contested within organisations and that impacts can vary considerably across different organizational contexts.

Modelling rental change across key retail investment markets in Britain

Models of the commercial property market have become increasingly sophisticated in recent years. However, the retail sector and, more specifically, analysis of retail markets at the local level, have been comparatively neglected. This paper makes inroads into this gap in property research. Retail rental change at the local level is explored, focusing on consumer expenditure as the key determinant of change. The appropriateness of proxy variables is investigated and the mechanisms of rental change are examined. This highlights issues and difficulties unique to local level analysis. Following this, the relationship between rental change and underlying changes in consumer expenditure is investigated. The stability of a panel model of rental change is examined, with differences in market functioning identified across diverse groups of key local retail investment markets. These differences highlight the re‐emergence of northern markets during both the economic decline and recovery phases of the last decade of the 20th century. Rental levels in larger and smaller markets are also seen to respond to changes in consumer expenditure to significantly different degrees, in periods of both decline and recovery.

Capital allowances: do they reduce lending risk?

AbstractMost property valuations ignore tax issues as instructed to do so by the valuation guidelines. This paper highlights the cash savings that are available in some properties from the tax relief generated from capital allowances, and how they affect the return on investment. As the driver for investment in the commercial property market in the UK is shifting from capital growth to income, the post‐tax position becomes more important. This paper therefore makes a case for looking beyond the ‘Red Book’ valuation when re‐examining loan to value ratios in a changing market. Copyright © 2004 Henry Stewart Publications