The persistence of distance: a gravity model of European cross-border real estate development flows

Purpose – This paper aims to investigate the scale and drivers of cross-border real estate development in Western Europe and Central and Eastern Europe. Design/methodology/approach – Placing cross-border real estate development within the framework of foreign direct investment (FDI), conceptual complexities in characterizing the notional real estate developer are emphasized. Drawing upon a transaction database, this paper proxies cross-border real estate development flows with asset sales by developers. Findings – Much higher levels of market penetration by international real estate developers are found in the less mature markets of Central and Eastern Europe. Analysis suggests a complex range of determinants with physical distance remaining a consistent barrier to cross-border development flows. Originality/value – This analysis adds significant value in terms of understanding cross-border real estate development flows. In this study, a detailed examination of the issues based on a rigorous empirical analysis through gravity modelling is offered. The gravity framework is one of the most confirmed empirical regularities in international economics and commonly applied to trade, FDI, migration, foreign portfolio investment inter alia. This paper assesses the extent to which it provides useful insights into the pattern of cross-border real estate development flows.

Bank integration and co-movements across housing markets

This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal.

The impact of outward investments on parent company's employment and skill composition

This paper investigates the impact of outward foreign direct investment (FDI) by Italian multinationals on their total employment and skill composition. Specifically, by comparing data on 108 Italian manufacturing firms that became multinational (for the first time) in the period 1998–2004 with a counterfactual group of 2500 national firms that remained national in the same period, we provide descriptive and econometric evidence that the internationalisation of production activities did not reduce domestic employment in the parent companies neither for investments in developed or developing countries. As far as the skill composition is concerned, results reveal that only firms investing in Central and Eastern European countries experience some skill upgrading relative to firms that remained national.

Outward investments and productivity: evidence from European regions

Outward investments and productivity: evidence from European regions, Regional Studies. Using a novel data set on international investment projects, this paper builds measures of outward foreign direct investments (FDIs) for 262 regions of the European Union. This allows as estimation to be made of regressions of productivity growth over the 2007–11 period as a function of the number of FDIs. The number of outward FDIs in manufacturing activities is negatively associated with productivity growth in the home region, but investments in sales, distribution and marketing are associated with a boost in local productivity. This is driven especially by investments towards non-European Union locations. This evidence qualifies the fear of hollowing-out as a consequence of outward investments

Risk reduction and diversification in UK commercial property portfolios

The issue of diversification in direct real estate investment portfolios has been widely studied in academic and practitioner literature. Most work, however, has been done using either partially aggregated data or data for small samples of individual properties. This paper reports results from tests of both risk reduction and diversification that use the records of 10,000+ UK properties tracked by Investment Property Databank. It provides, for the first time, robust estimates of the diversification gains attainable given the returns, risks and cross‐correlations across the individual properties available to fund managers. The results quantify the number of assets and amount of money needed to construct both ‘balanced’ and ‘specialist’ property portfolios by direct investment. Target numbers will vary according to the objectives of investors and the degree to which tracking error is tolerated. The top‐level results are consistent with previous work, showing that a large measure of risk reduction can be achieved with portfolios of 30–50 properties, but full diversification of specific risk can only be achieved in very large portfolios. However, the paper extends previous work by demonstrating on a single, large dataset the implications of different methods of calculating risk reduction, and also by showing more disaggregated results relevant to the construction of specialist, sector‐focussed funds.

Coase and international business: the origin and development of internalisation theory

The internalisation theory of the multinational enterprise is a significant intellectual legacy of Ronald Coase. US direct investment in Europe became highly political in the 1960s, and neoclassical trade theory had no explanation. A theory of the multi-plant enterprise was required, and internalisation theory filled this gap. Using Coasian economics to explain the ownership of production plants, and the geography of trade to explain their location, internalisation theory offered a comprehensive account of MNEs and their role in the international economy. This paper outlines the development of the theory, explains the Coasian contribution, and examines in detail the early work of Hymer, McManus and Buckley and Casson. It then reviews the current state of internalisation theory and suggests some future developments.

National boundaries and the location of multinational firms in Europe

Using data on 5,102 subsidiaries established in the period 1991–1999, we examine the location choice of multinational firms of different nationalities in 47 regions of five EU countries. In particular we estimate a nested logit model and find that European multinationals consider regions across different countries as relatively closer substitutes than regions within national borders. This is consistent with the hypothesis that European regions compete to attract foreign direct investments relatively more across than within countries. However, in line with previous studies, we also find that national boundaries still play some role in choices made by non-European multinationals.

Domestic and foreign bias in global real estate mutual fund investment allocations

The purpose of the study is to seek a better understanding of the investment allocation behaviour of the real estate mutual funds by focusing on asset allocation at the country level. Analysing the country allocation of 553 real estate mutual funds domiciled in 20 countries, we attempt to trace how investment bias exists across countries and affects their country allocations. Our results evidence the existence of disproportionate country allocation to their domestic markets (domestic bias) and to each foreign market (foreign bias). We also find each bias is influenced by different sets of variables: real estate market influences for domestic bias and familiarity influences for foreign bias. This difference in factors influential for each bias in part explains the conflated relationship between the two biases.

Does foreign investment affect US office real estate prices?

his article examines the impact of foreign real estate investment on U.S. office market capitalization rates. The geographic unit of analysis is MSA and the time period is 2001–2013. Drawing upon a database of commercial real estate transactions, the authors model the determinants of market capitalization rates with a particular focus on the significance of the proportion of market transactions involving foreign investors. Employing several econometric techniques to analyze the data, the results suggest statistically significant effects of foreign investment across 38 U.S. metro areas. It is estimated that, all else equal, a 100 basis point increase in foreign share of total investment in a U.S. metropolitan office market causes about an 8 basis point decrease in the market cap rate.

Gauging the investment potential of international real estate markets

Investing in real estate markets overseas means venturing into the unknown, where you meet unfamiliar political and economic environments, unstable currencies, strange cultures and languages, and so although the advantages of international diversification might appear attractive, the risks of international investment must not be overlooked. However, capital markets are becoming global markets, and commercial real estate markets are no exception, accordingly despite the difficulties posed by venturing overseas no investor can overlook the potential international investment holds out. Thus, what strategies are appropriate for capitalising on this potential? Three issues must be considered: (1) the potential of the countries real estate market in general; (2) the potential of the individual market sectors; and (3) the investment process itself. Although each step in foreign real estate investment is critical, the initial assessment of opportunities is especially important. Various methods can be used to achieve this but a formal and systematic analysis of aggregate market potential should prove particularly fruitful. The work reported here, therefore, develops and illustrates such a methodology for the over 50 international real estate markets.

Does infrastructure investment stimulate building supply? The case of the English regions

Does infrastructure investment stimulate building supply? The case of the English regions, Regional Studies. Policies to improve infrastructure to stimulate regional growth remain common. This paper investigates whether increases in infrastructure investment in the English regions lead to subsequent rises in new commercial and residential property, using time-series modelling. Both physical (roads and harbours) and social infrastructure (education and health) impacts are investigated. Hardly any infrastructure effects with respect to commercial property investment were found, which raises doubts about whether extra infrastructure creates employment, though some impact was related to residential building. Overall, these results raise doubts about the supposed direct effects of infrastructure policies on regional jobs and growth.