An analysis of the determinants of cross-border real estate development flows

This paper investigates the scale and drivers of cross-border real estate development in western and central and eastern Europe (CEE). Drawing upon existing literature on the integration of international real estate markets, we make some inferences on expected patterns of cross-border real estate development from this literature review. The paper draws upon a transactions database in order to assess the penetration of national markets by international real estate developers. The determinants of cross-border transaction flows are modeled as a function the range of economic and real estate variables. Whilst western European markets tend to be dominated by local developers, much higher levels of market penetration by international real estate developers are found in the less mature markets of central and eastern Europe. Empirical modelling based on gravity model specifications reveal the importance of size of the economies, distance between countries, extent of globalization and EU membership as significant determinants of cross-border real estate development flow.

International office investment in global cities: the production of financial space and systemic risk

The paper explores the relationships between UK commercial real estate and regional economic development as a foundation for the analysis of the role of real estate investment in local economic development. Linkages between economic growth, development, real estate performance and investment allocations are documented. Long-run regional property performance is not the product of long-run economic growth, and weakly related to indicators of long-run supply and demand. Changes in regional portfolio weights seem driven by neither market performance nor underlying fundamentals. In the short run, regional investment shifts show no clear leads or lags with market performance.

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.

Commercial real estate and equity market bubbles: are they contagious to REITs?

This paper uses a regime-switching approach to determine whether prices in the US stock, direct real estate and indirect real estate markets are driven by the presence of speculative bubbles. The results show significant evidence of the existence of periodically partially collapsing speculative bubbles in all three markets. A multivariate bubble model is then developed and implemented to evaluate whether the stock and real estate bubbles spill over into REITs. The underlying stock market bubble is found to be a stronger influence on the securitised real estate market bubble than that of the property market. Furthermore, the findings suggest a transmission of speculative bubbles from the direct real estate to the stock market, although this link is not present for the returns themselves.

The impact of E-commerce on retail real estate in the UK

This article summarizes the main research findings from the first of a series of annual surveys conducted for the British Council of Shopping Centres. The study examines the changing pattern of retailing in the United Kingdom and provides an overview of key research from previous studies in both the U.K. and the United States. The main findings are then presented, including an examination of the impact of e-commerce on sales and rental values and on the future space and ownership / leasing requirements of U.K. retailers for 2000-2005. The impact on a shopping center in a case study town in the U.K. is also considered. The difficulties of isolating the impact of e-commerce from other forces for change in retailing are highlighted. In contrast to other viewpoints, the results show that e-commerce will not mean the death of conventional store-based U.K. retailing, although further benchmark research is needed.

A critical review of methodologies for measuring rental depreciation applied to UK commercial real estate

Real estate depreciation continues to be a critical issue for investors and the appraisal profession in the UK in the 1990s. Depreciation-sensitive cash flow models have been developed, but there is a real need to develop further empirical methodologies to determine rental depreciation rates for input into these models. Although building quality has been found to be an important explanatory variable in depreciation it is very difficult to incorporate it into such models or to analyse it retrospectively. It is essential to examine previous depreciation research from real estate and economics in the USA and UK to understand the issues in constructing a valid and pragmatic way of calculating rental depreciation. Distinguishing between 'depreciation' and 'obsolescence' is important, and the pattern of depreciation in any study can be influenced by such factors as the type (longitudinal or crosssectional) and timing of the study, and the market state. Longitudinal studies can analyse change more directly than cross-sectional studies. Any methodology for calculating rental depreciation rate should be formulated in the context of such issues as 'censored sample bias', 'lemons' and 'filtering', which have been highlighted in key US literature from the field of economic depreciation. Property depreciation studies in the UK have tended to overlook this literature, however. Although data limitations and constraints reduce the ability of empirical property depreciation work in the UK to consider these issues fully, 'averaging' techniques and ordinary least squares (OLS) regression can both provide a consistent way of calculating rental depreciation rates within a 'cohort' framework.

Macro-economic and financial determinants of comovement across global real estate security markets

This paper models the determinants of integration in the context of global real estate security markets. Using both local and U.S. Dollar denominated returns, we model conditional correlations across listed real estate sectors and also with the global stock market. The empirical results find that financial factors, such as the relationship with the respective equity market, volatility, the relative size of the real estate sector and trading turnover all play an important role in the degree of integration present. Furthermore, the results highlight the importance of macro-economic variables in the degree of integration present. All four of the macro-economic variables modeled provide at least one significant result across the specifications estimated. Factors such as financial and trade openness, monetary independence and the stability of a country’s currency all contribute to the degree of integration reported.

Real estate markets and the macroeconomy: a dynamic coherence framework

This paper analyzes the dynamic interactions between real estate markets, in the US and the UK and their macroeconomic environments. We apply a new approach based on a dynamic coherence function (DCF) to study these interactions bringing together different real estate markets (the securitized market, the commercial market and the residential market). The results suggest that there is a common trend that drives the different real estate markets in the UK and the US, particularly in the long run, since they have a similar shape of the DCF. We also find that, in the US, wealth and housing expenditure channels are very conductive during real estate crises. However, in the UK, only the wealth effect is significant as a transmission channel during real estate market downturns. In addition, real estate markets in the UK and the US react differently to institutional shocks. This brings some insights on the conduct of monetary policy in order to avoid disturbances in real estate markets.

The performance effects of composition changes on sector specific stock indices: The case of European listed real estate

This paper examines the impact of changes in the composition of real estate stock indices, considering companies both joining and leaving the indices. Stocks that are newly included not only see a short-term increase in their share price, but trading volumes increase in a permanent fashion following the event. This highlights the importance of indices in not only a benchmarking context but also in enhancing investor awareness and aiding liquidity. By contrast, as anticipated, the share prices of firms removed from indices fall around the time of the index change. The fact that the changes in share prices, either upwards for index inclusions or downwards for deletions, are generally not reversed, would indicate that the movements are not purely due to price pressure, but rather are more consistent with the information content hypothesis. There is no evidence, however, that index changes significantly affect the volatility of price changes or their operating performances as measured by their earnings per share.

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.

Futures trading, spot price volatility and market efficiency: evidence from European real estate securities futures

In 2007 futures contracts were introduced based upon the listed real estate market in Europe. Following their launch they have received increasing attention from property investors, however, few studies have considered the impact their introduction has had. This study considers two key elements. Firstly, a traditional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, the approach of Bessembinder & Seguin (1992) and the Gray’s (1996) Markov-switching-GARCH model are used to examine the impact of futures trading on the European real estate securities market. The results show that futures trading did not destabilize the underlying listed market. Importantly, the results also reveal that the introduction of a futures market has improved the speed and quality of information flowing to the spot market. Secondly, we assess the hedging effectiveness of the contracts using two alternative strategies (naïve and Ordinary Least Squares models). The empirical results also show that the contracts are effective hedging instruments, leading to a reduction in risk of 64 %.

Does connectivity add value to commercial real estate? The case of managed and conventional offices

This research is a preliminary study which examines the impact of connectivity on value in the managed office and conventional office sectors. The research is based on an extensive literature review, online survey and case studies carried out during 2005. The research shows, for the first time in the UK, how connectivity can increase value in office buildings, and how technology is priced in the market place.