Transaction based indices for the UK commercial real estate market: an exploration using IPD transaction data

The nature of private commercial real estate markets presents difficulties for monitoring market performance. Assets are heterogeneous and spatially dispersed, trading is infrequent and there is no central marketplace in which prices and cash flows of properties can be easily observed. Appraisal based indices represent one response to these issues. However, these have been criticised on a number of grounds: that they may understate volatility, lag turning points and be affected by client influence issues. Thus, this paper reports econometrically derived transaction based indices of the UK commercial real estate market using Investment Property Databank (IPD) data, comparing them with published appraisal based indices. The method is similar to that presented by Fisher, Geltner, and Pollakowski (2007) and used by Massachusett, Institute of Technology (MIT) on National Council of Real Estate Investment Fiduciaries (NCREIF) data, although it employs value rather than equal weighting. The results show stronger growth from the transaction based indices in the run up to the peak in the UK market in 2007. They also show that returns from these series are more volatile and less autocorrelated than their appraisal based counterparts, but, surprisingly, differences in turning points were not found. The conclusion then debates the applications and limitations these series have as measures of market performance.

Serial persistence in individual real estate returns in the UK

Purpose – The purpose of this paper is to examine individual level property returns to see whether there is evidence of persistence in performance, i.e. a greater than expected probability of well (badly) performing properties continuing to perform well (badly) in subsequent periods. Design/methodology/approach – The same methodology originally used in Young and Graff is applied, making the results directly comparable with those for the US and Australian markets. However, it uses a much larger database covering all UK commercial property data available in the Investment Property Databank (IPD) for the years 1981 to 2002 – as many as 216,758 individual property returns. Findings – While the results of this study mimic the US and Australian results of greater persistence in the extreme first and fourth quartiles, they also evidence persistence in the moderate second and third quartiles, a notable departure from previous studies. Likewise patterns across property type, location, time, and holding period are remarkably similar. Research limitations/implications – The findings suggest that performance persistence is not a feature unique to particular markets, but instead may characterize most advanced real estate investment markets. Originality/value – As well as extending previous research geographically, the paper explores possible reasons for such persistence, consideration of which leads to the conjecture that behaviors in the practice of institutional-grade commercial real estate investment management may themselves be deeply rooted and persistent, and perhaps influenced for good or ill by agency effects. - See more at: http://www.emeraldinsight.com/journals.htm?articleid=1602884&show=abstract#sthash.hc2pCmC6.dpuf

Studying the impact of ubiquitous monitoring technology on office worker behaviours: the value of sharing research data

Pervasive computing is a continually, and rapidly, growing field, although still remains in relative infancy. The possible applications for the technology are numerous, and stand to fundamentally change the way users interact with technology. However, alongside these are equally numerous potential undesirable effects and risks. The lack of empirical naturalistic data in the real world makes studying the true impacts of this technology difficult. This paper describes how two independent research projects shared such valuable empirical data on the relationship between pervasive technologies and users. Each project had different aims and adopted different methods, but successfully used the same data and arrived at the same conclusions. This paper demonstrates the benefit of sharing research data in multidisciplinary pervasive computing research where real world implementations are not widely available.

Lessons from real estate partnerships in the UK: Drivers, barriers and critical success factors

Purpose – This paper seeks to summarise the main research findings from a detailed, qualitative set of structured interviews and case studies of Real Estate Partnership (REP) schemes in the UK, which involve the construction of built facilities. The research, which was funded by the Foundation for the Built Environment, examines the evolution of REPs in the UK and in Europe. The paper also aims to analyse best practice, critical factors for success, and lessons for the future. Design/methodology/approach – The research in this paper is based around ten semi-structured interviews conducted with senior representatives from corporate occupiers, property consultants, legal practices and REP service providers. Findings – The research in the paper demonstrates that REPs are particularly suited to the UK, where lease lengths are relatively long, and the level of corporate real estate owner-occupation is often higher than elsewhere. It also shows that further research is needed to examine the future shape and form of the UK REP market. Research limitations/implications – The paper is based on a limited number of in-depth case study interviews. The paper shows that further research is needed to find better ways to examine REPs empirically. Practical implications – The paper is important in highlighting a number of main issues in developing REPs: identifying with occupier's objectives; risk transfer and size of contract; and developing appropriate innovation and skills. Originality/value – The paper examines the drivers, barriers and critical success factors (at strategic and operational levels) for REPs in the UK in detail and will be of value to property managers, facilities managers, investors, financiers, and others involved in the REP process.

The impact of information and communications technology on commercial real estate in the new economy

Purpose – This paper seeks to critically review the conceptual frameworks that have been developed for assessing the impact of information and communications technology (ICT) on real estate. Design/methodology/approach – The research is based on a critical review of existing literature and draws from examples of previous empirical research in the field. Findings – The paper suggests that a “socio-technical framework” is more appropriate to examine ICT impact in real estate than other “deterministic” frameworks. Therefore, ICT is an important part of the new economy, but must be seen in the context of a number of other social and economic factors. Research limitations/implications – The research is based on a qualitative assessment of existing frameworks, and by using examples from commercial real estate, assesses the extent to which a “socio-technical” framework can aid understanding of ICT impact. Practical implications – The paper is important in highlighting a number of the main issues in conceptualising ICT impact in real estate and also critically examines the emergence of a new economy in the information society within the general context of real estate. The paper also highlights research gaps in the field. Originality/value – The paper deconstructs the myths of the “death of real estate” and “productivity increase means jobs loss”, in relation to office real estate. Finally, it examines some of the ways in which ICT is impacting on real estate and suggests the most important components for a future research agenda in the field of ICT and real estate impact, and will be of value to property investors, facilities managers, developers, financiers, and others.

Bias or rationality? The case of UK commercial real estate investment

Purpose – The purpose of this paper is to test the hypothesis that investment decision making in the UK direct property market does not conform to the assumption of economic rationality underpinning portfolio theory. Design/methodology/approach – The developing behavioural real estate paradigm is used to challenge the idea that investor “man” is able to perform with economic rationality, specifically with reference to the analysis of the spatial dispersion of the entire UK “investible stock” and “investible locations” against observed spatial patterns of institutional investment. Location quotients are derived, combining different data sets. Findings – Considerably greater variation in institutional property holdings is found across the UK than would be expected given the economic and stock characteristics of local areas. This appears to provide evidence of irrationality (in the strict traditional economic sense) in the behaviour of institutional investors, with possible herding underpinning levels of investment that cannot be explained otherwise. Research limitations/implications – Over time a lack of distinction has developed between the cause and effect of comparatively low levels of development and institutional property investment across the regions. A critical examination of decision making and behaviour in practice could break this cycle, and could in turn promote regional economic growth. Originality/value – The entire “population” of observations is used to demonstrate the relationships between economic theory and investor performance exploring, for the first time, stock and local area characteristics.

Area-wide development viability appraisals: the concept of threshold land value within a UK planning context

Area-wide development viability appraisals are undertaken to determine the economic feasibility of policy targets in relation to planning obligations. Essentially, development viability appraisals consist of a series of residual valuations of hypothetical development sites across a local authority area at a particular point in time. The valuations incorporate the estimated financial implications of the proposed level of planning obligations. To determine viability the output land values are benchmarked against threshold land value and therefore the basis on which this threshold is established and the level at which it is set is critical to development viability appraisal at the policy-setting (area-wide) level. Essentially it is an estimate of the value at which a landowner would be prepared to sell. If the estimated site values are higher than the threshold land value the policy target is considered viable. This paper investigates the effectiveness of existing methods of determining threshold land value. They will be tested against the relationship between development value and costs. Modelling reveals that threshold land value that is not related to shifts in development value renders marginal sites unviable and fails to collect proportionate planning obligations from high value/low cost sites. Testing the model against national average house prices and build costs reveals the high degree of volatility in residual land values over time and underlines the importance of making threshold land value relative to the main driver of this volatility, namely development value.

Solvability and spectral properties of integral equations on the real line: I. Weighted spaces of continuous functions

We consider in this paper the solvability of linear integral equations on the real line, in operator form (λ−K)φ=ψ, where and K is an integral operator. We impose conditions on the kernel, k, of K which ensure that K is bounded as an operator on . Let Xa denote the weighted space as |s|→∞}. Our first result is that if, additionally, |k(s,t)|⩽κ(s−t), with and κ(s)=O(|s|−b) as |s|→∞, for some b>1, then the spectrum of K is the same on Xa as on X, for 01. As an example where kernels of this latter form occur we discuss a boundary integral equation formulation of an impedance boundary value problem for the Helmholtz equation in a half-plane.

The impedance boundary value problem for the Helmholtz equation in a half-plane

We prove unique existence of solution for the impedance (or third) boundary value problem for the Helmholtz equation in a half-plane with arbitrary L∞ boundary data. This problem is of interest as a model of outdoor sound propagation over inhomogeneous flat terrain and as a model of rough surface scattering. To formulate the problem and prove uniqueness of solution we introduce a novel radiation condition, a generalization of that used in plane wave scattering by one-dimensional diffraction gratings. To prove existence of solution and a limiting absorption principle we first reformulate the problem as an equivalent second kind boundary integral equation to which we apply a form of Fredholm alternative, utilizing recent results on the solvability of integral equations on the real line in [5].

Measuring the value of “all play and no work”: can rigorous assessment of simulation games drive innovative teaching in construction?

The construction field is dynamic and dominated by complex, ill-defined problems for which myriad possible solutions exist. Teaching students to solve construction-related problems requires an understanding of the nature of these complex problems as well as the implementation of effective instructional strategies to address them. Traditional approaches to teaching construction planning and management have long been criticized for presenting students primarily with well-defined problems - an approach inconsistent with the challenges encountered in the industry. However, growing evidence suggests that employing innovative teaching approaches, such as interactive simulation games, offers more active, hands-on and problem-based learning opportunities for students to synthesize and test acquired knowledge more closely aligned with real-life construction scenarios. Simulation games have demonstrated educational value in increasing student problem solving skills and motivation through critical attributes such as interaction and feedback-supported active learning. Nevertheless, broad acceptance of simulation games in construction engineering education remains limited. While recognizing benefits, research focused on the role of simulation games in educational settings lacks a unified approach to developing, implementing and evaluating these games. To address this gap, this paper provides an overview of the challenges associated with evaluating the effectiveness of simulation games in construction education that still impede their wide adoption. An overview of the current status, as well as the results from recently implemented Virtual Construction Simulator (VCS) game at Penn State provide lessons learned, and are intended to guide future efforts in developing interactive simulation games to reach their full potential.

Broker use and the cost of liquidity in commercial real estate investment

Purpose – Commercial real estate is a highly specific asset: heterogeneous, indivisible and with less information transparency than most other commonly held investment assets. These attributes encourage the use of intermediaries during asset acquisition and disposal. However, there are few attempts to explain the use of different brokerage models (with differing costs) in different markets. This study aims to address this gap. Design/methodology/approach – The study analyses 9,338 real estate transactions in London and New York City from 2001 to 2011. Data are provided by Real Capital Analytics and cover over $450 billion of investments in this period. Brokerage trends in the two cities are compared and probit regressions are used to test whether the decision to transact with broker representation varies with investor or asset characteristics. Findings – Results indicate greater use of brokerage in London, especially by purchasers. This persists when data are disaggregated by sector, time or investor type, pointing to the role of local market culture and institutions in shaping brokerage models and transaction costs. Within each city, the nature of the investors involved seems to be a more significant influence on broker use than the characteristics of the assets being traded. Originality/value – Brokerage costs are the single largest non-tax charge to an investor when trading commercial real estate, yet there is little research in this area. This study examines the role of brokers and provides empirical evidence on factors that influence the use and mode of brokerage in two major investment destinations.

The influence of a decision support tool on real estate valuations

An appraisal task involves the rendering of market value, an unobservable and hypothetical construct. Direct feedback against this objective is typically not possible, so alternative feedback such as confirmation of previous appraised values may be employed. This may alter the appraiser’s perception of the valuation objective leading to divergence from the appraisal normative model. The real estate literature suggests appraisers have been susceptible to the influence of previous appraised values, often resulting in biased valuations. This research focuses on the efficacy of a decision support tool in eliminating or subduing this bias in the appraisal process.

An environmental uncertainty-based diagnostic reference tool for evaluating the performance of supply chain value streams

This research has responded to the need for diagnostic reference tools explicitly linking the influence of environmental uncertainty and performance within the supply chain. Uncertainty is a key factor influencing performance and an important measure of the operating environment. We develop and demonstrate a novel reference methodology based on data envelopment analysis (DEA) for examining the performance of value streams within the supply chain with specific reference to the level of environmental uncertainty they face. In this paper, using real industrial data, 20 product supply value streams within the European automotive industry sector are evaluated. Two are found to be efficient. The peer reference groups for the underperforming value streams are identified and numerical improvement targets are derived. The paper demonstrates how DEA can be used to guide supply chain improvement efforts through role-model identification and target setting, in a way that recognises the multiple dimensions/outcomes of the supply chain process and the influence of its environmental conditions. We have facilitated the contextualisation of environmental uncertainty and its incorporation into a specific diagnostic reference tool.

First announcements and real economic activity

The recent literature suggests that first announcements of real output growth in the US have predictive power for the future course of the economy while the actual value of output growth does not. We show that this need not point to a behavioural relationship, whereby agents respond to perceptions instead of the truth, but may instead simply be a by-product of the data revision process. The revisions to the initial estimates which define the final values of the observations are shown to be key in determining any relationship between first announcements and the future course of the economy.

Threshold autoregressive and Markov switching models: an application to commercial real estate

Although financial theory rests heavily upon the assumption that asset returns are normally distributed, value indices of commercial real estate display significant departures from normality. In this paper, we apply and compare the properties of two recently proposed regime switching models for value indices of commercial real estate in the US and the UK, both of which relax the assumption that observations are drawn from a single distribution with constant mean and variance. Statistical tests of the models' specification indicate that the Markov switching model is better able to capture the non-stationary features of the data than the threshold autoregressive model, although both represent superior descriptions of the data than the models that allow for only one state. Our results have several implications for theoretical models and empirical research in finance.