Industrial Real Estate Research Articles

Identifying spatial nonstationarity in German regional firm start-up data

Background: We investigate the relationship between the rate at which new firms are established and regional characteristics and whether this relationship is con- stant over space or not. The characteristics reflect (i) agglomerations that in turn are related to increasing returns to production and (ii) measures which are influenceable immediately by regional decision makers. Method: In order to account for spatial nonstationarity, we use the geographi- cally weighted regression method for German start-up data on the geographical scale NUTS3. Moreover, we discuss significance test for locally varying regression coeffi- cients. Results: We are able to verify the global positive relationship between production convexities—measured by population density and growth amongst others—and the start-up rate on a regional level (Kreise). Furthermore, we find the share of industrial real estate to have positive influence on the regional start-up rate. Finally, we find strong empirically evidence that there is spatial nonstationarity in the data and hence the assumed relationship varies locally. Conclusion: The results give evidence that spatial nonstationarity could not be neglected in the analysis of start-up rates. However, we suggest to develop global models that account—at least partially—for the underlying spatial nonstationarity by exogenous variables.

Integrated Design and Engineering using Building Information Modelling: A Pilot Project of Small-Scale Housing Development in The Netherlands

During the design phase, decisions are made that affect, on average, 70% of the life-cycle cost of a building. Therefore, collaborative design relying on multidisciplinary knowledge of the building life cycle is essential. Building information modelling (BIM) makes it possible to integrate knowledge from various project participants that traditionally work in different phases of the building process. BIM has been applied in a number of large-scale projects in the industrial real estate and infrastructure sectors in different countries, including The Netherlands. The projects in the housing sector, however, are predominantly small scale and carried out by small and medium enterprises (SMEs). These SMEs are looking for practical and affordable BIM solutions for housing projects. This article reports a pilot project of small-scale housing development using BIM in the province of Zeeland, The Netherlands. The conceptual knowledge derived from European and national research projects is disseminated to the SMEs through a series of experimental working sessions. Action learning protocols within a pilot project are developed to ensure direct impacts in terms of cost reduction and quality improvement. The project shows that BIM can be applied without radical changes to the SMEs' information and communication technology systems or to their business organizations. DOI: 10.3763/aedm.2010.0116 Source: Architectural Engineering and Design Management, Volume 6, Number 2, 2010 , pp. 103-110(8)

Spatial concentration in industrial real estate

PurposeThis paper seeks to examine the extent of real estate investment concentration in institutional industrial portfolios at these same two points in time.Design/methodology/approachTo examine this issue two datasets are used at two dates, 1998 and 2003. The analysis is confined to England and Wales because of data considerations relating to the availability of comparable data for the rest of the UK. The first dataset relates to floor space and rateable value statistics for the so‐called “bulk classes” of commercial property at Unitary Authority and District (local authority area, LA) level. The more specific institutional real estate investment data for the study come from the IPD analysis “UK Local Markets”. This provides a detailed view of the performance of institutional real estate investment, by sector, in a number of localities across the UK. For the purposes of this study, IPD made data available showing (but with much less detail) other LAs where the number of properties held was greater than zero, but fewer than the four required normally for disclosure. The approach taken is to map the basic data and the results from a standardising measure of spatial concentration – the Location Quotient.FindingsThe findings show that industrial investment concentration is between that of retail and offices and is focused on LAs with high levels of manual workers in areas with smaller industrial units. It also shows that during the period studied the structure of the sector changed, with greater emphasis on the distributional (logistic) element, for which location is a principal consideration. Historically, the sector has provided consistently good total returns with low risk, and was the only sector to expand in terms of numbers of institutionally invested units over the study period. While industrial real estate assets generally do not attract as much capital growth as other sectors, especially in boom periods, rents continued to grow in the period under study. Taken together with the relative resilience in the sector's performance seen over successive cycles, it is not surprising that significant institutional enthusiasm was evidenced.Originality/valueUsing data sets that account for the entire “population” of observations at these two dates the paper demonstrates the relationships between economic theory and the market performance of the sector. The comparisons with the other main sectors also show the differences that would be expected between the sectors, emphasising the point that these markets are dynamic and that their structure, form and content can change dramatically even over quite short periods.

Integrated Design and Engineering using Building Information Modelling: A Pilot Project of Small-Scale Housing Development in The Netherlands

During the design phase, decisions are made that affect, on average, 70% of the life-cycle cost of a building. Therefore, collaborative design relying on multidisciplinary knowledge of the building life cycle is essential. Building information modelling (BIM) makes it possible to integrate knowledge from various project participants that traditionally work in different phases of the building process. BIM has been applied in a number of large-scale projects in the industrial real estate and infrastructure sectors in different countries, including The Netherlands. The projects in the housing sector, however, are predominantly small scale and carried out by small and medium enterprises (SMEs). These SMEs are looking for practical and affordable BIM solutions for housing projects. This article reports a pilot project of small-scale housing development using BIM in the province of Zeeland, The Netherlands. The conceptual knowledge derived from European and national research projects is disseminated to the SMEs through a series of experimental working sessions. Action learning protocols within a pilot project are developed to ensure direct impacts in terms of cost reduction and quality improvement. The project shows that BIM can be applied without radical changes to the SMEs' information and communication technology systems or to their business organizations.

Maximization of nonresidential property tax revenue by a local government

The article presents a model of the market for commercial or industrial real estate at the local level that is used to derive an equation for the property tax rate that maximizes tax revenue – given that demand for real estate at the local level is highly elastic and capital is mobile in the long-run.

Industrial Real Estate Investment: Does the Contrarian Strategy Work?

The superiority of the contrarian investment strategy, though well attested to in the finance literature, has received scant attention, if any, in the real estate literature. This study uses empirical industrial real estate investment return data from 1985Q1 to 2005Q3 for the US, and some Asia Pacific cities in order to ascertain the relative superiority of “value” and “growth” industrial real estate investments. The results show that “value” industrial property investment outperformed “growth” industrial property investment in all the holding periods under consideration. Furthermore the industrial property investments exhibit return reversal. This implies that the superiority of the contrarian strategy is sustainable. The results of stochastic dominance tests validate the relative superiority of “value” over “growth” industrial property investment. This implies that fund managers who traditionally have been favoring prime (i.e. growth) industrial property investment may have to reconsider their investment strategy if they want to maximize their return.

Investment and uncertainty in machinery and real estate

Investment is usually treated as an homogeneous variable in the literature. The wide differences in the nature of inputs used in investment projects may lead to interesting insights that are not captured in the conventional approach. In this paper I decompose investment in machinery and industrial real estate and examine the impact of economic uncertainty on each of these components. Using panel data estimation methods for the Brazilian industry, I found that uncertainty exerts a harmful effect on both types of investment. However, the effect is much more intense with machines, which possibly is a consequence of their high reversibility costs.

Virtueller Gewerbeflächenpool — Ein Modell regionalplanerischer Mengensteuerung der Siedlungsflächenentwicklung

The current situation in industrial real estate development is characterised by a paradox: open space is still under attack although enough reserves are available in sum. However, the supplied real estates do not fit within the given demand in terms of location and quality. Causing factors are the existing supply-oriented urban planning law, but also a regional planning model which allocates concrete settlement areas. In these terms, the presented paper offers a new concept which aims at a quantity control of industrial real estates in combination with contractual agreements within a region between the municipalities and the regional planning authority.

Property taxation and selling prices of industrial real estate

Purpose – The purpose of this paper is to test empirically the extent to which differences in property taxes are capitalized in the market prices of industrial real estate.Design/methodology/approach – This paper is a multiple regression study of the selling prices of 419 industrial properties near O’Hare airport in metropolitan Chicago that were sold during 2001‐2004. The paper also includes a theoretical analysis of the relationship between the property tax rate on industrial property and the tax revenue that is collected.Findings – The results show that selling price per square foot is a function of property characteristics as expected, and suggest that the property tax differential between Cook County and DuPage County is fully capitalized. The property tax differential was 2.63 per cent of market value, and comparable properties sold for 16.2 per cent less in Cook County than in adjacent DuPage County. The theoretical analysis shows that the revenue‐maximizing property tax rate in the long run depend...

Warehouse Demand and the Path of Goods Movement

Executive Summary. In 1994, Mueller and Laposa published “The Path of Goods Movement” that identified a new paradigm in the analysis of warehouse space demand and location. The evolution of the freight transportation industry was underway and the transportation logistics business was in its infancy. Over the past fifteen years the “Path of Goods Movement” (POGM) concept has been embraced by the real estate industry and many large real estate investors have based their warehouse acquisition and management strategies on the POGM concept. Even Prologis, the largest industrial REIT in the United States is concentrated in warehouse markets that lay on the POGM. This paper looks at the changes that have occurred to the POGM over the past fifteen years and identifies new trends and relationships that have modified the POGM.

The Stock Return Difference between Industrial REITs and Manufacturing Firms: Space Supply and Demand Effects

Executive Summary.This paper compares and studies the stock performance of industrial real estate investment trusts (REITs) and other industrial companies. The return difference between industrial REITs and manufacturing firms is modeled as a function of industrial space supply and demand. A graphical analysis illustrates the connection between the manufacturing goods and the industrial space markets, showing that performance differences between the two markets can be explained by changes in space supply and demand. An empirical analysis using aggregate industry data confirms this premise.

The impact of radio frequency identification on supply chain facilities

Radio frequency identification or RFID has received much press of late, mainly due to the recent compliance mandates by many of the world’s largest retailers (Wal‐Mart, Tesco, Marks and Spencer, Target, etc.) and Gillette’s reported purchase of 500 million units last year. The technology has been proclaimed to ‘lead to an entirely new relationship between people and things’ (J. D. Markman, ‘Invest in the Greatest Thing since the Bar Code’, MSN Money ‐ SuperModels, 25th June, 2003; http:// moneycentral.msn.com/content/P50823.asp). Others have said ‘we think it will be bigger than the Internet. All the Web did was connect computers to computers. That’s not as big as connecting things to computers’ (M. Roberti, publisher of RFID Journal, in interview with Markman, above). Promoters describe a supply chain where all assets are in perfect visibility through production, distribution, retail and consumption. According to one analyst, the world will need about half the warehouse space it needs today (P. Jilek, ‘Corporate Sector Focus, A Killer App?’ CSFB Investment Strategy, 17th June, 2003). This paper introduces RFID technology and its potential implications. Although the technology is compelling, there are serious nearterm challenges. Finally, the paper looks at the impact RFID could have on supply chain facilities and the future demand for industrial real estate.

Planned urban industrialization and its effect on urban industrial real estate valuation: The Singapore experience

This paper investigates the challenge posed by an optimal balance of land use because of chronic land resource scarcity, in conjunction with the growing requirement for quality-intensive industrial accommodation in the island-state city of Singapore. Optimizing land resource, under a strong physical planning framework and its physical planning administration, is envisaged to set the conditions that facilitate the creation of values for urban industrial real estate assets. This value creation enables urban industrial real estate values to find their steady state levels, under a structure of causal links. It can significantly represent, although not completely, the efficient price mechanism for allocating land to its highest and best industrial use. Thus, a generalized multiple regression analysis model is estimated to robustly explain urban industrial real estate asset value in terms of the structural price-discovery factors, under the physical planning framework and its administration. This paper extends the urban real estate valuation model to incorporate a geographic information system that enables a spatial distribution analysis of urban industrial real estate asset values.

Groundwater Contamination and Real Estate Investment Risk

The market for commercial and industrial real estate can be impacted by the risks and uncertainty associated with environmental contamination. This research addresses environmental risk perceptions through a national survey of commercial and industrial real estate investors, and compares the results to a similar survey of lenders. Key findings are: perceived risk declines as cleanup plans for contaminated properties are approved, cleanup begins and is completed; lenders perceive greater risk than investors before, during and after cleanup; prior experience with contaminated properties generally decreases perceived risk; and strong market conditions mitigate perceived risk while weak conditions tend to exacerbate these perceptions.

Industrial recruitment and economic development: a comparative analysis of competing south‐eastern cities using perceptual mapping

In this study of industrial recruitment and economic development, perceptual mapping was used to identify the collective and individual positions of ten competing south‐eastern cities. The perceived position of the “ideal” city also was captured by the study's findings. Industrial real estate executives who were surveyed indicated that some cities have positioned themselves strategically in terms of quality of life, whereas others are recognized because of their resources and markets or pro‐business environment. Some cities appear better able to take advantage of their position, whereas others face economic development obstacles.

A study of the factors influencing the operating location decisions of small firms

Investigates the purchase of industrial real estate by small to medium enterprises. Using a three‐stage methodology, examined the views of a stakeholder panel, then drew a sample of 450 firms ranging from micro‐businesses to large firms and examined the importance of various factors likely to influence the attractiveness of an industrial site. A focus group comprising members of an expert panel was then convened to discuss the findings. Highlights the subjective decision‐making associated with the smaller firms in comparison with the “buying centre” objectivity of the larger firms. Owner‐managers from micro and small firms were motivated by such personal issues as the proximity of the industrial site to their home, rather than access to transport routes or freight terminals. The findings suggest that government and private sector agencies seeking to develop and market industrial land need to devote more time to understanding the needs of small firms. Also discusses implications for future research.

The Environment and Performance of Industrial Real Estate

This study examined over seventy industrial real estate research papers and categorized them according to: 1) property characteristics, 2) demand determinants, 3) rent and income determinants, 4) return and valuation issues, 5) environmental concerns, 6) international issues, and 7) management and financing concerns. The findings indicate that industrial properties tend to be segmented and clustered by use with greater demand for flexibility and smaller size, yet with reduced demand for warehouse space. Employment, age, and percentage of office space affect industrial rents while industrial land values indicate future rental rates. In addition, local market factors, physical characteristics and location affect industrial property values, but environmental contamination has an adverse effect.

Common features in UK commercial real estate returns

This paper examines the degree of short run co-movement in UK commercial real estate returns. The hypothesis is that a large fraction of the fluctuations may result from a small number of core disturbances that are transmitted from one region to another and from one property type to another. It adopts an approach from the business cycles literature which uses common features, and their complement, common cycles. The empirical modelling follows the work by Tiao and Tsay (1985), Engle and Kozicki (1993), Vahid and Engle (1993, 1994) and Engle and Issler (1995). Thirty-nine regional rates of return series are used, covering retail, office and industrial real estate for the economic planning regions of the UK. For the series that exhibit serial correlation, bivariate and multivariate common feature/common cycle tests are performed and reduced dimensional VAR models are estimated. The results suggest a single common cycle for the retail and industrial markets and three common cycles in the office market. The existence of common features is important in the study of commercial returns as, when common features exist, uncovering these enhances understanding of the returns generating process. Moreover, this assists in understanding the scope for diversification within real estate portfolios. The results offer important insights into the links between regional real estate markets, not least because they are consistent with previous studies using very different approaches.

A cointegration approach to understanding Singapore’s industrial space supply

Observes that the timely and sufficient provision of industrial space helps to facilitate industrial activities that contribute to economic growth. An understanding of the interactions between the economy and the real estate market is useful to local policy decision makers and developers in ensuring the ready availability of industrial space without incurring unnecessary excess vacancy. This article hopes to build upon existing research by applying cointegration analysis and error‐correction modelling to examine the supply dynamics of Singapore’s industrial property market. The presence of long‐run equilibrium relationships between industrial property supply, economic and real estate variables is tested using cointegration analysis. The persistence profile examines the effect of system‐wide shocks to the cointegration relations to determine whether they are true cointegrating vectors.

Environmental Contamination and Industrial Real Estate Prices

This article is the winner of the Industrial Real Estate manuscript prize (sponsored by Society of Industrial and Office REALTORS) presented at the American Real Estate Society Annual Meeting.This article examines the effects of environmental contamination on the sales prices of industrial properties. Two general questions are addressed. The first is the extent to which sales prices may be impacted by contamination. The second is whether sales price effects due to contamination persist subsequent to the remediation of previously contaminated industrial properties. Using data on industrial property sales in Southern California, this study estimates sales price models that address these two questions. The results show that there are statistically significant impacts on property values in the period before and during remediation, but that these effects dissipate subsequent to cleanup.