The role of serviced offices in the corporate real estate supply chain

The paper analyses the evolving corporate real estate supply chain and the interaction of this evolution with emerging business models in the serviced office sector. An enhanced model of the corporate real estate portfolio is first presented incorporating vacant, alienated and transitory space. It is argued that the serviced office sector has evolved in response to an increasingly diverse corporate real estate portfolio. For the peripheral corporate real estate portfolio, the core serviced workspace product provides the ability to rapidly acquire high-quality workspace and associated support services on very flexible bases. Whilst it is arguably a beta product, the core workspace offer is now being augmented by managed office or back-to-back leases which enables clients to complement the advantages of serviced offices with a wider choice of premises. Joint venture business models are aligned with solutions to problems of vacant space.

Evolution and change in the serviced office sector: a decade later

With particular reference to its role in the corporate real estate supply chain, this paper focuses on how the serviced office sector in the UK has evolved and changed over the last decade. A qualitative research approach involving 21 semi-structured interviews with corporate clients of serviced office operators was used to address a number of issues regarding the perceptions of users of serviced offices. It is concluded that the serviced office sector has become an established sector of the UK’s commercial real estate market providing an essential product for many corporate organisations. The serviced office sector has been relatively nimble and a range of operational models have emerged. It was found that corporate organisations use serviced office space and services in order to align workforce change with portfolio change, to transfer risk, for short-term project space, as temporary overflow space, to pilot a new location, to become familiar with a specific geographical marketplace or simply to gain an initial presence in an area.

The cross-currency hedging performance of implied versus statistical forecasting models

This article examines the ability of several models to generate optimal hedge ratios. Statistical models employed include univariate and multivariate generalized autoregressive conditionally heteroscedastic (GARCH) models, and exponentially weighted and simple moving averages. The variances of the hedged portfolios derived using these hedge ratios are compared with those based on market expectations implied by the prices of traded options. One-month and three-month hedging horizons are considered for four currency pairs. Overall, it has been found that an exponentially weighted moving-average model leads to lower portfolio variances than any of the GARCH-based, implied or time-invariant approaches.

The trading profitability of forecasts of the gilt–equity yield ratio

Research has highlighted the usefulness of the Gilt–Equity Yield Ratio (GEYR) as a predictor of UK stock returns. This paper extends recent studies by endogenising the threshold at which the GEYR switches from being low to being high or vice versa, thus improving the arbitrary nature of the determination of the threshold employed in the extant literature. It is observed that a decision rule for investing in equities or bonds, based on the forecasts from a regime switching model, yields higher average returns with lower variability than a static portfolio containing any combinations of equities and bonds. A closer inspection of the results reveals that the model has power to forecast when investors should steer clear of equities, although the trading profits generated are insufficient to outweigh the associated transaction costs.

Idiosyncratic volatility and the pricing of poorly-diversified portfolios

This article examines the role of idiosyncratic volatility in explaining the cross-sectional variation of size- and value-sorted portfolio returns. We show that the premium for bearing idiosyncratic volatility varies inversely with the number of stocks included in the portfolios. This conclusion is robust within various multifactor models based on size, value, past performance, liquidity and total volatility and also holds within an ICAPM specification of the risk–return relationship. Our findings thus indicate that investors demand an additional return for bearing the idiosyncratic volatility of poorly-diversified portfolios.

HMEF: framework to evaluate merging of Higher Education Institutions – application of Enterprise Architecture

Mergers of Higher Education Institutions (HEIs) are organisational processes requiring tremendous amount of resources, in terms of time, work, and money. A number of mergers have been seen on previous years and more are to come. Several studies on mergers have been conducted, revealing some crucial factors that affect the success of mergers. Based on literature review on these studies, factors are: the initiator of merger, a reason for merger, geographical distance of merging institutions, organisational culture, the extend of overlapping course portfolio, and Quality Assurance Systems (QASs). Usually these kind of factors are not considered on mergers, but focus is on financial matters. In this paper, a framework (HMEF) for evaluating merging of HEIs is introduced. HMEF is based on Enterprise Architecture (EA), focusing on factors found to be affecting the success of mergers. By using HMEF, HEIs can focus on matters that crucial for merging.

Individual assets, market structure and the drivers of return

Much UK research and market practice on portfolio strategy and performance benchmarking relies on a sector‐geography subdivision of properties. Prior tests of the appropriateness of such divisions have generally relied on aggregated or hypothetical return data. However, the results found in aggregate may not hold when individual buildings are considered. This paper makes use of a dataset of individual UK property returns. A series of multivariate exploratory statistical techniques are utilised to test whether the return behaviour of individual properties conforms to their a priori grouping. The results suggest strongly that neither standard sector nor regional classifications provide a clear demarcation of individual building performance. This has important implications for both portfolio strategy and performance measurement and benchmarking. However, there do appear to be size and yield effects that help explain return behaviour at the property level.

Residential property loans and bank performance during property price booms: evidence from Europe

Understanding the performance of banks is of the utmost importance due to the impact the sector may have on economic growth and financial stability. Residential mortgage loans constitute a large proportion of the portfolio of many banks and are one of the key assets in the determination of their performance. Using a dynamic panel model, we analyse the impact of residential mortgage loans on bank profitability and risk, based on a sample of 555 banks in the European Union (EU-15), over the period from 1995 to 2008. We find that an increase in residential mortgage loans seems to improve bank’s performance in terms of both profitability and credit risk in good market, pre-financial crisis, conditions. These findings may aid in explaining why banks rush to lend to property during booms because of the positive effect it has on performance. The results also show that credit risk and profitability are lower during the upturn in the residential property cycle.

Financial services for the poor within the formal/informal nexus in sub-Saharan Africa

This paper draws upon fieldwork undertaken across Kenya, Zambia, Mozambique and South Africa to present a reflective overview of the use of financial services amongst the poorest members of society. It considers the role that access to a portfolio of financial products and services may have as a contributory factor in poverty alleviation, but also how inappropriate use of these mechanisms may exacerbate a descent into poverty. This work draws upon the notions of poverty pools and the rise of fall of low income households in and out of poverty, alongside the contributory nature of vicious cycles of economic and political poverty. Drawing on fieldwork experiences it presents a synopsis of the types of financial mechanisms commonly in use on the African continent, as well as examples of public, private and civil society partnerships that are producing services specifically tailored for those in extreme and absolute poverty.

The agile governance of business IT projects

Organisations typically define and execute their selected strategy by developing and managing a portfolio of projects. The governance of this portfolio has proved to be a major challenge, particularly for large organisations. Executives and managers face even greater pressures when the nature of the strategic landscape is uncertain. This paper explores approaches for dealing with different levels of certainty in business IT projects and provides a contingent governance framework. Historically business IT projects have relied on a structured sequential approach, also referred to as a waterfall method. There is a distinction between the development stages of a solution and the management stages of a project that delivers the solution although these are often integrated in a business IT systems project. Prior research has demonstrated that the level of certainty varies between development projects. There can be uncertainty on what needs to be developed and also on how this solution should be developed. The move to agile development and management reflects a greater level of uncertainty often on both dimensions and this has led the adoption of more iterative approaches. What has been less well researched is the impact of uncertainty on the governance of the change portfolio and the corresponding implications for business executives. This paper poses this research question and proposes a govemance framework to address these aspects. The governance framework has been reviewed in the context of a major anonymous organisation, FinOrg. Findings are reported in this paper with a focus on the need to apply different approaches. In particular, the governance of uncertain business change is contrasted with the management approach for defined IT projects. Practical outputs from the paper include a consideration of some innovative approaches that can be used by executives. It also investigates the role of the business change portfolio group in evaluating and executing the appropriate level of governance. These results lead to recommendations for executives and also proposed further research.

The impact of liquidity on senior credit index spreads during the subprime crisis

This paper examines the effects of liquidity during the 2007–09 crisis, focussing on the Senior Tranche of the CDX.NA.IG Index and on Moody's AAA Corporate Bond Index. It aims to understand whether the sharp increase in the credit spreads of these AAA-rated credit indices can be explained by worse credit fundamentals alone or whether it also reflects a lack of depth in the relevant markets, the scarcity of risk-capital, and the liquidity preference exhibited by investors. Using cointegration analysis and error correction models, the paper shows that during the crisis lower market and funding liquidity are important drivers of the increase in the credit spread of the AAA-rated structured product, whilst they are less significant in explaining credit spread changes for a portfolio of unstructured credit instruments. Looking at the experience of the subprime crisis, the study shows that when the conditions under which securitisation can work properly (liquidity, transparency and tradability) suddenly disappear, investors are left highly exposed to systemic risk.

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.

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.

The blended approach to real estate allocations: performance implications of combining an exposure to German Spezialfonds with Global Listed Real Estate Securities

This paper seeks to increase the understanding of the performance implications for investors who choose to combine an unlisted real estate portfolio (in this case German Spezialfonds) with a (global) listed real estate element. We call this a “blended” approach to real estate allocations. For the avoidance of doubt, in this paper we are dealing purely with real estate equity (listed and unlisted) allocations, and do not incorporate real estate debt (listed or unlisted) or direct property into the process. A previous paper (Moss and Farrelly 2014) showed the benefits of the blended approach as it applied to UK Defined Contribution Pension Schemes. The catalyst for this paper has been the recent attention focused on German pension fund allocations, which have a relatively low (real estate) equity content, and a high bond content. We have used the MSCI Spezialfonds Index as a proxy for domestic German institutional real estate allocations, and the EPRA Global Developed Index as a proxy for a global listed real estate allocation. We also examine whether a rules based trading strategy, in this case Trend Following, can improve the risk adjusted returns above those of a simple buy and hold strategy for our sample period 2004-2015. Our findings are that by blending a 30% global listed portfolio with a 70% allocation (as opposed to a typical 100% weighting) to Spezialfonds, the real estate allocation returns increase from 2.88% p.a. to 5.42% pa. Volatility increases, but only to 6.53%., but there is a noticeable impact on maximum drawdown which increases to 19.4%. By using a Trend Following strategy raw returns are improved from 2.88% to 6.94% p.a. , The Sharpe Ratio increases from 1.05 to 1.49 and the Maximum Drawdown ratio is now only 1.83% compared to 19.4% using a buy and hold strategy . Finally, adding this (9%) real estate allocation to a mixed asset portfolio allocation typical for German pension funds there is an improvement in both the raw return (from 7.66% to 8.28%) and the Sharpe Ratio (from 0.91 to 0.98).