Proceedings of the West Africa Built Environment Research (WABER) Conference 2010

FOREWORD Welcome to this West Africa Built Environment Research (WABER) conference taking place here in Ghana. Thank you for coming and welcome to Accra. The main aims of the WABER conference are: to help young researchers and early-career scholars in West Africa to develop their research work and skills through constructive face-to-face interaction with experienced academics; to provide a platform for networking and collaborative work among senior built environment academics in West Africa; and to serve as a vehicle for developing the field of construction management and economics in Africa. Waber 2009 The WABER event in 2009 was held at the British Council in Accra, Ghana on 2-3 June. The event was a resounding success. It attracted participation from 32 researchers, from 12 different institutions, who presented their work to an audience of approximately 100 people. Each presenter received immediate and constructive feedback from an international panel. The event was opened by Professor K.K. Adarkwa, Vice Chancellor of KNUST, Kumasi, Ghana, with several senior academics and researchers from universities, polytechnics, and other institutions in Ghana and Nigeria in attendance. There was also a significant level of attendance by senior construction practitioners in Ghana. Thank you to the School of Construction Management and Engineering, University of Reading, UK for funding the inaugural event in 2009. We are also grateful to all of you who helped to make the event a success and to those of you who have joined us here today to build upon the success and legacy of WABER 2009. Waber 2010 This year, we have 60+ peer-reviewed papers and presentations on topics relating to Building services and maintenance, Construction costs, Construction design and technology, Construction education, Construction finance, Construction procurement, Contract administration, Contract management, Contractor development, Decision support systems, Dispute resolution, Economic development, Energy efficiency, Environment and sustainability, Health and safety, Human resources, Information technology, Marketing, Materials science, Organisation strategy and business performance, Productivity, Project management, Quantity surveying, Real estate and planning, Solar energy systems, Supply chain management and Urban development. We hope that these papers will generate interest among delagates and stimulate discussion here and beyond the conference into the wider community of academia and industry. The delegates at this conference come from 10 different countries. This provides a rich international and multicultural blend and a perfect platform for networking and developing collaborations. This year we are blessed to have three high profile keynote speakers in the persons of Professor George Ofori (National University of Singapore), Dr Roine Leiringer (University of Reading, UK) and Professor Will Hughes (University of Reading, UK). We are also thankful to Dr Chris Harty (University of Reading, UK) who is facilitating the Research Skills Workshop on ‘Writing a scientific article’. Thank you to Dr Sena Agyepong of our conference organising team for her capable management of local organising arrangements. And above all, thank you to all of you for coming to this conference. Enjoy and have a safe journey back home. Dr Samuel Laryea School of Construction Management and Engineering University of Reading, July 2010

Annual CREMRU-JCI survey of corporate estate management practices in Europe and North America: 1993-1997

This paper summarizes the results of the 1993, 1994, 1995, 1996 and 1997 surveys of chief real estate officers (CREO) from major organizations in Europe and North America. Since 1997 the annual survey is being undertaken jointly by the Corporate Real Estate Management Research Unit (CREMRU) and Johnson Controls Incorporate (JCI). The annual survey has been supported by the International Development Research Council (IDRC) and the International Association of Corporate Real Estate Executives (NACORE International), two leading professional associations concerned with this field of professional activity. The emphasis of this summary is on two aspects of the survey: the incidence of corporate real estate management (CREM) policies, functions and activities; and the assessment of knowledge or skills relevant to the CREM function in the future. Both are of paramount interest to the educational institutions concerned with CREM on both sides of the Atlantic. This includes the educational organs of international organizations concerned with corporate real estate, such as IDRC and NACORE, which play increasingly important roles in the education of their members. The CREMRUJCI annual survey will hopefully offer a useful tool in the international educational effort in this field

The relative importance sector and regional factors in Italy

The benefits of sector and regional diversification have been well documented in the literature but have not previously been investigated in Italy. In addition, previous studies have used geographically defined regions, rather than economically functional areas, when performing the analysis even though most would argue that it is the economic structure of the area that will lead to differences in demand and hence property performance. This study therefore uses economically defined regions of Italy to test the relative benefits of regional diversification versus sector diversification within the Italian real estate portfolio. To examine this issue we use constrained cross-section regressions the on the sector and regional affiliation of 14 cities in Italy to extract the “pure” return effects of the different factors using annual data over the period 1989 to 2003. In contrast, to previous studies we find that regional factors effects in Italy have a much greater influence on property returns than sector-specific effects, which is probably a direct result of using the extremely diverse economic regions of Italy rather than arbitrary geographically locations. Be that as it may, the results strongly suggest that that diversification across the regions of Italy used here is likely to offer larger risk reduction benefits than a sector diversification strategy within a region. In other words, fund managers in Italy must monitor the regional composition of their portfolios more closely than its sector allocation. Additionally, the results supports that contemporary position that ‘regional areas’ based on economic function, provide greater diversification benefits rather than areas defined by geographical location.

Real option pricing in mixed-use development projects

The application of real options theory to commercial real estate has developed rapidly during the last 15 Years. In particular, several pricing models have been applied to value real options embedded in development projects. In this study we use a case study of a mixed use development scheme and identify the major implied and explicit real options available to the developer. We offer the perspective of a real market application by exploring different binomial models and the associated methods of estimating the crucial parameter of volatility. We include simple binomial lattices, quadranomial lattices and demonstrate the sensitivity of the results to the choice of inputs and method.

Country, sector and regional factors in European property returns

For those portfolio managers who follow a top-down approach to fund management when they are trying to develop a pan-European investment strategy they need to know which are the most important factors affecting property returns, so as to concentrate their management and research efforts accordingly. In order to examine this issue this paper examines the relative importance of country, sector and regional effects in determining property returns across Europe using the largest database of individual property returns currently available. Using annual data over the period 1996 to 2002 for a sample of over 25,000 properties the results show that the country-specific effects dominate sector-specific factors, which in turn dominate the regional-specific factors. This is true even for different sub-sets of countries and sectors. In other words, real estate returns are mainly determined by local (country specific) conditions and are only mildly affected by general European factors. Thus, for those institutional investors contemplating investment into Europe the first level of analysis must be an examination of the individual countries, followed by the prospects of the property sectors within the country and then an assessment of the differences in expected performance between the main city and the rest of the country.

The cyclical behaviour of sector and regional diversification benefits: 1987-2002

This paper investigates the time series behaviour of the relative benefits of sector and regional diversification strategies, using the notion of cross-sectional dispersion introduced by Solnik and Roulet (2000). Using monthly data over the period 1987:1 to 2002:12, four sector and four regional classifications are examined in the UK. The results indicate that sector and regional dispersion indices are highly time varying and so dwarf any lower frequency cyclical components that may be present. Nonetheless, periods of high dispersion are closely followed by periods of low dispersion, suggestive of cyclical behaviour of sector and regional diversification benefits. Then, using the HP-filter we isolated the cyclical component of the various dispersion indices and found that the sector dispersion indices are generally above the regional dispersion indices. This implies that a sector diversification strategy is likely to offer greater risk reduction benefits than a regional diversification approach. Nonetheless, we find that in some periods, certain regional diversification strategies are of equal or greater benefit than certain sector approaches. The results also appear to be quite sensitive to the classifications of sectors and regions. Hence, the appropriate definition of sectors and regions can have important implications for sector and regional diversification strategies.

Changes in the relative importance of sector and regional factors: 1987-2002

A stylised fact in the real estate portfolio diversification literature is that sector (property-type) effects are relatively more important than regional (geographical) factors in determining property returns. Thus, for those portfolio managers who follow a top-down approach to portfolio management, they should first choose in which sectors to invest and then select the best properties in each market. However, the question arises as to whether the dominance of the sector effects relative to regional effects is constant. If not property fund managers will need to take account of regional effects in developing their portfolio strategy. Using monthly data over the period 1987:1 to 2002:12 for a sample of over 1000 properties the results show that the sector-specific factors dominate the regional-specific factors for the vast majority of the time. Nonetheless, there are periods when the regional factors are of equal or greater importance than the sector effects. In particular, the sector effects tend to dominate during volatile periods of the real estate cycle; however, during calmer periods the sector and regional effects are of equal importance. These findings suggest that the sector effects are still the most important aspect in the development of an active portfolio strategy.

Dynamic correlations across REIT sub-sectors

The issue of whether Real Estate Investment Trusts should pursue a focused or diversified investment strategy remains an ongoing debate within both the academic and industry communities. This paper considers the relationship between REITs focused on different property sectors in a GARCH-DCC framework. The daily conditional correlations reveal that since 1990 there has been a marked upward trend in the coefficients between US REIT sub-sectors. The findings imply that REITs are behaving in a far more homogeneous manner than in the past. Furthermore, the argument that REITs should be focused in order that investors can make the diversification decision is reduced.

The sky is the limit? The determinants and constraints of European airports' commercial revenues

This study investigates the determinants of commercial and retail airport revenues as well as revenues from real estate operations. Cross-sectional OLS, 2SLS and robust regression models of European airports identify a number of significant drivers of airport revenues. Aviation revenues per passenger are mainly determined by the national income per capita in which the airport is located, the percentage of leisure travelers and the size of the airport proxied by total aviation revenues. Main drivers of commercial revenues per passenger include the total number of passengers passing through the airport, the ratio of commercial to total revenues, the national income, the share of domestic and leisure travelers and the total number of flights. These results are in line with previous findings of a negative influence of business travelers on commercial revenues per passenger. We also find that a high amount of retail space per passenger is generally associated with lower commercial revenues per square meter confirming decreasing marginal revenue effects. Real estate revenues per passenger are positively associated with national income per capita at airport location, share of intra-EU passengers and percent delayed flights. Overall, aviation and non-aviation revenues appear to be strongly interlinked, underlining the potential for a comprehensive airport management strategy above and beyond mere cost minimization of the aviation sector.

Who benefits from reducing the cost of formality? Quantile regression discontinuity analysis

This paper studies the effects of increasing formality via tax reduction and simplification schemes on micro-firm performance. It uses the 1997 Brazilian SIMPLES program. We develop a simple theoretical model to show that SIMPLES has an impact only on a segment of the micro-firm population, for which the effect of formality on firm performance can be identified, and that can be analyzed along the single dimensional quantiles of the conditional firm revenues. To estimate the effect of formality, we use an econometric approach that compares eligible and non-eligible firms, born before and after SIMPLES in a local interval about the introduction of SIMPLES. We use an estimator that combines both quantile regression and the regression discontinuity identification strategy. The empirical results corroborate the positive effect of formality on microfirms' performance and produce a clear characterization of who benefits from these programs.

Property company performance and real interest rates: a regime-switching approach

Linear models of property market performance may be misspecified if there exist distinct states where the market drivers behave in different ways. This paper examines the applicability of non-linear regime-based models. A Self Exciting Threshold Autoregressive (SETAR) model is applied to property company share data, using the real rate of interest to define regimes. Distinct regimes appear exhibiting markedly different market behaviour. The model both casts doubt on the specification of conventional linear models and offers the possibility of developing effective trading rules for real estate equities.

Changes in the relative importance of sector and regional Factors: 1987-2002

A stylised fact in the real estate portfolio diversification literature is that sector (property-type) effects are relatively more important than regional (geographical) factors in determining property returns. Thus, for those portfolio managers who follow a top-down approach to portfolio management, they should first choose in which sectors to invest and then select the best properties in each market. However, the question arises as to whether the dominance of the sector effects relative to regional effects is constant. If not property fund managers will need to take account of regional effects in developing their portfolio strategy. We find the results show that the sector-specific factors dominate the regional-specific factors for the vast majority of the time. Nonetheless, there are periods when the regional factors are of equal or greater importance than the sector effects. In particular, the sector effects tend to dominate during volatile periods of the real estate cycle; however, during calmer periods the sector and regional effects are of equal importance. These findings suggest that the sector effects are still the most important aspect in the development of an active portfolio strategy.

Dynamic correlations between REIT sub-sectors and the implications for diversification

The issue of whether Real Estate Investment Trusts (REITs) should pursue a focused or diversified investment strategy remains an ongoing debate within both the academic and industry communities. This article considers the relationship between REITs focused on different property sectors in a Generalized Autoregressive Conditional Heteroscedasticity-Dynamic Control Correlation (GARCH-DCC) framework. The daily conditional correlations reveal that since 1990 there has been a marked upward trend in the coefficients between US REIT sub-sectors. The findings imply that REITs are behaving in a far more homogeneous manner than in the past. Furthermore, the argument that REITs should be focused in order that investors can make the diversification decision is reduced.