Depreciation and its impact on the total return of UK commercial real estate, 1994-2003

Depreciation is a key element of understanding the returns from and price of commercial real estate. Understanding its impact is important for asset allocation models and asset management decisions. It is a key input into well-constructed pricing models and its impact on indices of commercial real estate prices needs to be recognised. There have been a number of previous studies of the impact of depreciation on real estate, particularly in the UK. Law (2004) analysed all of these studies and found that the seemingly consistent results were an illusion as they all used a variety of measurement methods and data. In addition, none of these studies examined impact on total returns; they examined either rental value depreciation alone or rental and capital value depreciation. This study seeks to rectify this omission, adopting the best practice measurement framework set out by Law (2004). Using individual property data from the UK Investment Property Databank for the 10-year period between 1994 and 2003, rental and capital depreciation, capital expenditure rates, and total return series for the data sample and for a benchmark are calculated for 10 market segments. The results are complicated by the period of analysis which started in the aftermath of the major UK real estate recession of the early 1990s, but they give important insights into the impact of depreciation in different segments of the UK real estate investment market.

A geography of the UK commercial property market

This paper revisits some ideas that were first raised seriously in the mid-90s; that it should be possible to establish linkages (in spatial terms) between local economic factors and sector performance in commercial real estate markets. There have been a number of developments in the quality and quantity of relevant data over the intervening period that make it appropriate to return to have another look at some of these ideas in a more ‘modern’ technological context. Using data from several sources this exploratory paper seeks therefore to look at some of the spatial patterns that can be derived from the data. It examines the extent to which it is possible to make linkages and visualise the geographical structure of those markets and their change over time. Naturally there remain strong limitations on the extent to which it is possible to achieve ‘good’ results in this kind of analysis, and one major intention of the paper is to encourage a debate about how data sets can be developed and improved to allow these methods to be taken further.

Expert judgement in the processes of commercial property market forecasting

In this paper, we investigate the role of judgement in the formation of forecasts in commercial property markets. The investigation is based on interview surveys with the majority of UK forecast producers, who are using a range of inputs and data sets to form models to predict an array of variables for a range of locations. The findings suggest that forecasts need to be acceptable to their users (and purchasers) and consequently forecasters generally have incentives to avoid presenting contentious or conspicuous forecasts. Where extreme forecasts are generated by a model, forecasters often engage in ‘self‐censorship’ or are ‘censored’ following in‐house consultation. It is concluded that the forecasting process is significantly more complex than merely carrying out econometric modelling, forecasts are mediated and contested within organisations and that impacts can vary considerably across different organizational contexts.

The production and consumption of commercial real estate market forecasts

Whilst the vast majority of the research on property market forecasting has concentrated on statistical methods of forecasting future rents, this report investigates the process of property market forecast production with particular reference to the level and effect of judgemental intervention in this process. Expectations of future investment performance at the levels of individual asset, sector, region, country and asset class are crucial to stock selection and tactical and strategic asset allocation decisions. Given their centrality to investment performance, we focus on the process by which forecasts of rents and yields are generated and expectations formed. A review of the wider literature on forecasting suggests that there are strong grounds to expect that forecast outcomes are not the result of purely mechanical calculations.

The marginal benefit of diversification in commercial real estate portfolios

The number of properties to hold to achieve a well-diversified real estate property portfolio presents a puzzle, as the estimated number is considerably higher than that seen in actual portfolios. However, Statman (1987) argues that investors should only increase the number of holdings as long as the marginal benefits of diversification exceed their costs. Using this idea we find that the marginal benefits of diversification in real estate portfolios are so small that investors are probably rational in holding small portfolios, at least as far as the reduction in standard deviation is concerned.

Effect of dietary supplementation with selenium-enriched yeast or sodium selenite on selenium tissue distribution and meat quality in commercial-line turkeys

The objective of this study was to determine the concentration of total selenium (Se) and proportions of total Se comprised as selenomethionine (SeMet) and selenocysteine (SeCys) in the tissues of female turkeys offered diets containing graded additions of selenized-enriched yeast (SY), or sodium selenite (SS). Oxidative stability and tissue glutathione peroxidase (GSH-Px) activity of breast and thigh muscle were assessed at 0 and 10 days post mortem. A total of 216 female turkey poults were enrolled in the study. A total of 24 birds were euthanized at the start of the study and samples of blood, breast, thigh, heart, liver, kidney and gizzard were collected for determination of total Se. Remaining birds were blocked by live weight and randomly allocated to one of four dietary treatments(n548 birds/treatment) that differed either in Se source (SY v. SS) or dose (Con [0.2 mg/kg total Se], SY-L and SS-L [0.3mg/kg total Se as SY and SS, respectively] and SY-H [0.45mg total Se/kg]). Following 42 and 84 days of treatment 24 birds per treatment were euthanized and samples of blood, breast, thigh, heart, liver, kidney and gizzard were retained for determination of total Se and the proportion of total Se comprised as SeMet or SeCys. Whole blood GSH-Px activity was determined at each time point. Tissue GSH-Px activity and thiobarbituric acid reactive substances were determined in breast and thigh tissue at the end of the study. There were responses (P,0.001) in all tissues to the graded addition of dietary Se, although rates of accumulation were highest in birds offered SY. There were notable differences between tissue types and treatments in the distribution of SeMet and SeCys, and the activity of tissue and erythrocyte GSH-Px (P,0.05). SeCys was the predominant form of Se in visceral tissue and SeMet the predominant form in breast tissue. SeCys contents were greater in thigh when compared with breast tissue. Muscle tissue GSH-Px activities mirrored SeCys contents. Despite treatment differences in tissue GSH-Px activity, there were no effects of treatment on any meat quality parameter.