Friction and inertia: business change, corporate real estate portfolios and the UK office market

It has been asserted that business reorganisation and new working practices are transforming the nature of demand for business space. Downsizing, delayering, business process reengineering and associated initiatives alter the amount, type and location of space required by firms. The literature has neglected the impact of real estate market structures on the ability of organisations to successfully implement these new organisational forms or contemporary working practices. Drawing from UK research, the paper demonstrates that, while new working practices are widespread, their impact on the corporate real estate portfolio is less dramatic than often supposed. In part, this is attributed to inflexibility in market structures which constrains the supply of appropriate space.

Aligning asset allocation and real estate investment: some lessons from the last cycle

Asset allocation is concerned with the development of multi--‐asset portfolio strategies that are likely to meet an investor’s objectives based on the interaction of expected returns, risk, correlation and implementation from a range of distinct asset classes or beta sources. Challenges associated with the discipline are often particularly significant in private markets. Specifically, composition differences between the ‘index’ or ‘benchmark’ universe and the investible universe mean that there can often be substantial and meaningful deviations between the investment characteristics implied in asset allocation decisions and those delivered by investment teams. For example, while allocation decisions are often based on relatively low--‐risk diversified real estate ‘equity’ exposure, implementation decisions frequently include exposure to higher risk forms of the asset class as well as investments in debt based instruments. These differences can have a meaningful impact on the contribution of the asset class to the overall portfolio and, therefore, lead to a potential misalignment between asset allocation decisions and implementation. Despite this, the key conclusion from this paper is not that real estate investors should become slaves to a narrowly defined mandate based on IPD / NCREIF or other forms of benchmark replication. The discussion suggests that such an approach would likely lead to the underutilization of real estate in multi--‐asset portfolio strategies. Instead, it is that to achieve asset allocation alignment, real estate exposure should be divided into multiple pools representing distinct forms of the asset class. In addition, the paper suggests that associated investment guidelines and processes should be collaborative and reflect the portfolio wide asset allocation objectives of each pool. Further, where appropriate they should specifically target potential for ‘additional’ beta or, more marginally, ‘alpha’.

Business life cycle and capital structure: evidence from Chinese manufacturing firms

This paper uses a panel data-fixed effect approach and data collected from Chinese public manufacturing firms between 1999 and 2011 to investigate the impacts of business life cycle stages on capital structure. We find that cash flow patterns capture more information on business life cycle stages than firm age and have a stronger impact on capital structure decision-making. We also find that the adjustment speed of capital structure varies significantly across life cycle stages and that non-sequential transitions over life cycle stages play an important role in the determination of capital structure. Our study indicates that it is important for policy-makers to ensure that products and financial markets are well-balanced.

Factors influencing anthropogenic carbon dioxide uptake in the North Atlantic in models of the ocean carbon cycle

The uptake and storage of anthropogenic carbon in the North Atlantic is investigated using different configurations of ocean general circulation/carbon cycle models. We investigate how different representations of the ocean physics in the models, which represent the range of models currently in use, affect the evolution of CO2 uptake in the North Atlantic. The buffer effect of the ocean carbon system would be expected to reduce ocean CO2 uptake as the ocean absorbs increasing amounts of CO2. We find that the strength of the buffer effect is very dependent on the model ocean state, as it affects both the magnitude and timing of the changes in uptake. The timescale over which uptake of CO2 in the North Atlantic drops to below preindustrial levels is particularly sensitive to the ocean state which sets the degree of buffering; it is less sensitive to the choice of atmospheric CO2 forcing scenario. Neglecting physical climate change effects, North Atlantic CO2 uptake drops below preindustrial levels between 50 and 300 years after stabilisation of atmospheric CO2 in different model configurations. Storage of anthropogenic carbon in the North Atlantic varies much less among the different model configurations, as differences in ocean transport of dissolved inorganic carbon and uptake of CO2 compensate each other. This supports the idea that measured inventories of anthropogenic carbon in the real ocean cannot be used to constrain the surface uptake. Including physical climate change effects reduces anthropogenic CO2 uptake and storage in the North Atlantic further, due to the combined effects of surface warming, increased freshwater input, and a slowdown of the meridional overturning circulation. The timescale over which North Atlantic CO2 uptake drops to below preindustrial levels is reduced by about one-third, leading to an estimate of this timescale for the real world of about 50 years after the stabilisation of atmospheric CO2. In the climate change experiment, a shallowing of the mixed layer depths in the North Atlantic results in a significant reduction in primary production, reducing the potential role for biology in drawing down anthropogenic CO2.

Variation in pituitary expression of mRNAs encoding the putative inhibin co-receptor (betaglycan) and type-I and type-II activin receptors during the chicken ovulatory cycle

Secretion of LH and FSH from the anterior pituitary is regulated primarily by hypothalamic GnRH and ovarian steroid hormones. More recent evidence indicates regulatory roles for certain members of the transforming growth factor beta (TGF beta) superfamily including inhibin and activin. The aim of this study was to identify expression of mRNAs encoding key receptors and ligands of the inhibin/activin system in the hen pituitary gland and to monitor their expression throughout the 24-25-h ovulatory cycle. Hens maintained on long days (16 h light/8 h dark) were killed 20, 12, 6 and 2 h before predicted ovulation of a midsequence egg (n = 8 per group). Anterior pituitary glands were removed, RNA extracted and cDNA synthesized. Plasma concentrations of LH, FSH, progesterone and inhibin A were measured. Real-time quantitative PCR was used to quantify pituitary expression of mRNAs encoding betaglycan, activin receptor (ActR) subtypes (type I, IIA), GnRH receptor (GnP,H-R), LH beta subunit, FSH beta subunit and GAPDH. Levels of mRNA for inhibin/activin beta A and beta B subunits, inhibin alpha subunit, follistatin and ActRIIB mRNA in pituitary were undetectable by quantitative PCR (< 2 amol/reaction). Significant changes in expression (P < 0.05) of ActRIIA and betaglycan mRNA were found, both peaking 6 h before ovulation just prior to the preovulatory LH surge and reaching a nadir 2 h before ovulation, just after the LH surge. There were no significant changes in expression of ActRI mRNA throughout the cycle although values were correlated with mRNA levels for both ActRIIA (r=0.77; P < 0.001) and betaglycan (r=0.45; P < 0.01). Expression of GnRH-R mRNA was lowest 20 h before ovulation and highest (P < 0.05) 6 h before ovulation; values were weakly correlated with betaglycan (r=0.33; P=0.06) and ActRIIA (r=0.34; P=0.06) mRNA levels. Expression of mRNAs encoding LH beta and FSH beta subunit were both lowest (P < 0.05) after the LH surge, 2 h before ovulation. These results are consistent with an endocrine, but not a local intrapituitary, role of inhibin-related proteins in modulating gonadotroph function during the ovulatory cycle of the hen, potentially through interaction with betaglycan and ActRIIA. In contrast to mammals, intrapituitary expression of inhibin/activin subunits and follistatin appears to be extremely low or absent in the domestic fowl.

Variation in pituitary expression of mRNAs encoding the putative inhibin co-receptor (betaglycan) and type-I and type-II activin receptors during the chicken ovulatory cycle

Secretion of LH and FSH from the anterior pituitary is regulated primarily by hypothalamic GnRH and ovarian steroid hormones. More recent evidence indicates regulatory roles for certain members of the transforming growth factor beta (TGF beta) superfamily including inhibin and activin. The aim of this study was to identify expression of mRNAs encoding key receptors and ligands of the inhibin/activin system in the hen pituitary gland and to monitor their expression throughout the 24-25-h ovulatory cycle. Hens maintained on long days (16 h light/8 h dark) were killed 20, 12, 6 and 2 h before predicted ovulation of a midsequence egg (n = 8 per group). Anterior pituitary glands were removed, RNA extracted and cDNA synthesized. Plasma concentrations of LH, FSH, progesterone and inhibin A were measured. Real-time quantitative PCR was used to quantify pituitary expression of mRNAs encoding betaglycan, activin receptor (ActR) subtypes (type I, IIA), GnRH receptor (GnP,H-R), LH beta subunit, FSH beta subunit and GAPDH. Levels of mRNA for inhibin/activin beta A and beta B subunits, inhibin alpha subunit, follistatin and ActRIIB mRNA in pituitary were undetectable by quantitative PCR (< 2 amol/reaction). Significant changes in expression (P < 0.05) of ActRIIA and betaglycan mRNA were found, both peaking 6 h before ovulation just prior to the preovulatory LH surge and reaching a nadir 2 h before ovulation, just after the LH surge. There were no significant changes in expression of ActRI mRNA throughout the cycle although values were correlated with mRNA levels for both ActRIIA (r=0.77; P < 0.001) and betaglycan (r=0.45; P < 0.01). Expression of GnRH-R mRNA was lowest 20 h before ovulation and highest (P < 0.05) 6 h before ovulation; values were weakly correlated with betaglycan (r=0.33; P=0.06) and ActRIIA (r=0.34; P=0.06) mRNA levels. Expression of mRNAs encoding LH beta and FSH beta subunit were both lowest (P < 0.05) after the LH surge, 2 h before ovulation. These results are consistent with an endocrine, but not a local intrapituitary, role of inhibin-related proteins in modulating gonadotroph function during the ovulatory cycle of the hen, potentially through interaction with betaglycan and ActRIIA. In contrast to mammals, intrapituitary expression of inhibin/activin subunits and follistatin appears to be extremely low or absent in the domestic fowl.

Exit strategies for business tenants

Many businesses in the UK occupy premises on fixed term leases, which usually run for several years. During this time property requirements can change. This research critically examines the three main mechanisms by which tenants can bring their leases to an end; breaks, assignment and subletting. We examine the legal rules governing these devices and undertake an analysis of lease data and surveys. Break clauses are providing a useful exit mechanism for many tenants, but they cannot give the more general flexibility of assignment and subletting. However, change is necessary to ensure that these latter provisions provide real flexibility for tenants.

Small business lease reform - can the UK learn from the Australian experience?

This paper addresses the commercial leases policy issue of how to deal with small business tenants. The UK has adopted a voluntary solution to commercial lease reform by using Codes of Practice which is in contrast to the legislative approach adopted by Australia to attempt to solve its perceived problems with small business retail tenancies. The aim of the research was to examine the perceptions of the effectiveness of the legislation in Australia and discuss any implications for the UK policy debate. The research used a combination of literature and legislation review and a semi structured interview survey to investigate the policy aims and objectives of Australian Federal and State Governments, identify the nature and scope of the Australian legislation and examine perceptions of effectiveness of the legislation in informing small business tenants. The situation is complicated in Australia due to leases being a State rather than Federal responsibility therefore the main fieldwork was carried out in one case study State, Victoria. The paper concludes that some aspects of the Australian system can inform the UK policy debate including mandatory information provision at the commencement of negotiations and the use of lease registrars/commissioners. However, there are a number of issues that the Australian legislation does not appear to have successfully addressed including the difficulties of legislating across partial segments of the commercial property market and the collection of data for enforcement purposes.

Small business legislation in Australia: does it provide a solution to part of the UK lease reform debate?

This paper addresses the commercial leases policy issue of how to deal with small business tenants. The UK has adopted a voluntary solution to commercial lease reform by using Codes of Practice which is in contrast to the legislative approach adopted by Australia to attempt to solve its perceived problems with small business retail tenancies. The major aim of the research was to examine the perceptions of the effectiveness of the legislation in Australia and discuss any implications for the UK policy debate but the results of the research also raise questions for the Australian regime. The research used a combination of literature and legislation review and a semi structured interview survey to investigate the policy aims and objectives of Australian Federal and State Governments, identify the nature and scope of the Australian legislation and examine perceptions of effectiveness of the legislation in informing small business tenants. The situation is complicated in Australia due to leases being a State rather than Federal responsibility therefore the main fieldwork was carried out in one case study State, Victoria. The paper concludes that some aspects of the Australian system can inform the UK policy debate including mandatory information provision at the commencement of negotiations and the use of lease registrars/commissioners. However, there are a number of issues that the Australian legislation does not appear to have successfully addressed including the difficulties of legislating across partial segments of the commercial property market and the collection of data for enforcement purposes.

Information sources and advice used by small business tenants when leasing commercial property

Many small businesses lease commercial premises. The terms of a lease can affect the ability of the business to grow and adapt and have an impact on cashflow. Ensuring that they have the information with which to negotiate terms is part of the UK government policy focus on small businesses. Such information is most effectively disseminated through the sources of advice that small businesses use during the leasing process. Therefore these sources of advice need identifying. An interview survey of small business tenants who have recently taken leases provides initial results that suggest small businesses do not seek out advice during the leasing process or see the need to be better informed. The only formal professional input is from solicitors but this is not until after the main commercial terms have been agreed. The landlords’ letting agents play a key, but ambiguous, role in providing information as well as advice. These results suggest that the most effective way of disseminating information by government could be via the letting agents, the very people with whom the tenants are negotiating.

Decision theory and real estate development: a note on uncertainty

Real estate development appraisal is a quantification of future expectations. The appraisal model relies upon the valuer/developer having an understanding of the future in terms of the future marketability of the completed development and the future cost of development. In some cases the developer has some degree of control over the possible variation in the variables, as with the cost of construction through the choice of specification. However, other variables, such as the sale price of the final product, are totally dependent upon the vagaries of the market at the completion date. To try to address the risk of a different outcome to the one expected (modelled) the developer will often carry out a sensitivity analysis on the development. However, traditional sensitivity analysis has generally only looked at the best and worst scenarios and has focused on the anticipated or expected outcomes. This does not take into account uncertainty and the range of outcomes that can happen. A fuller analysis should include examination of the uncertainties in each of the components of the appraisal and account for the appropriate distributions of the variables. Similarly, as many of the variables in the model are not independent, the variables need to be correlated. This requires a standardised approach and we suggest that the use of a generic forecasting software package, in this case Crystal Ball, allows the analyst to work with an existing development appraisal model set up in Excel (or other spreadsheet) and to work with a predetermined set of probability distributions. Without a full knowledge of risk, developers are unable to determine the anticipated level of return that should be sought to compensate for the risk. This model allows the user a better understanding of the possible outcomes for the development. Ultimately the final decision will be made relative to current expectations and current business constraints, but by assessing the upside and downside risks more appropriately, the decision maker should be better placed to make a more informed and “better”.

Do small business tenants need protecting in commercial lease negotiations?

This paper sets out the findings relating to small business tenants of a major UK Government funded study into the commercial and industrial property landlord and tenant relationship. The UK Government is concerned that small business tenants do not appreciate many of the implications of signing leases, which in the UK are generally longer than in most other countries of the world. The objectives of the paper are to identify the characteristics of leases in the UK and any differences between those signed by small, medium and larger companies. It also examines the negotiation process and identifies whether small business tenant negotiations exhibit different characteristics. The findings are that small business tenants occupy on different terms to larger tenants including shorter terms and that the negotiation process is also different. Many small business tenants are unrepresented at the commercial stage of negotiations and take the first terms on offer. They are largely unaware of attempts to make them more informed by voluntary industry Codes of Practice. This can lead to small business tenants being unaware of the implications of certain terms within leases, hence the continuing Government concern over the issue.

Real estate capital flows and transitional economies

reign real estate capital was a major source of financing domestic property market office construction in Central Europe after the fall of the Berlin Wall in 1989. During the 1990s, over 800 office buildings were either newly constructed or refurbished in Budapest, Prague and Warsaw. The primary focus of this analysis is explaining the spatial construction and redevelopment patterns of the post-1989 office buildings in these cities. Secondarily, we analyze the correlation of foreign direct investment flows to annual construction of office buildings. We seek to explain the location of new or refurbished office buildings in the central business district (CBD) or in non-CBD locations in terms of the effect of time, size of property and other variables, and test whether there is a positive correlation relationship of foreign direct investment flows and new office construction or refurbishment. Integrating relevant foreign direct investment (FDI), economic geography and property theories in the research, the authors attempt to bridge existing gaps in the literature.