Which factors drive rental depreciation rates for office and industrial properties?

As new buildings are constructed in response to changes in technology or user requirements, the value of the existing stock will decline in relative terms. This is termed economic depreciation and it may be influenced by the age and quality of buildings, amount and timing of expenditure, and wider market and economic conditions. This study tests why individual assets experience different depreciation rates, applying panel regression techniques to 375 UK office and industrial assets. Results suggest that rental value depreciation rates reduce as buildings get older, while a composite measure of age and quality provides more explanation of depreciation than age alone. Furthermore, economic and local real estate market conditions are significant in explaining how depreciation rates change over time.

The value of retail rents with regression models: a case study of Shanghai

Abstract
Purpose– The purpose of this paper is to estimate the determinants of the retail space rent in Shanghai.
Design/methodology/approach – Hedonic model and spatial regression models are used in the paper. The problem of spatial autocorrelation is tested by Moran’s I statistics, and the root mean square error (RMSE) test is performed to find out the best model.
Findings – The significant explaining variables are the age, the area of retail space, the distance to the Jing An CBD centre, the type of the retail and the district of the property. A new classification of district in retail research context is suggested in this paper, and it is proved to be better than the districts set up by government to explain the retail rent variation.
Originality/value – This paper presents the first empirical study about the retail rental market in Shanghai. The research helps retail property investors and retail tenants deepen their understanding of the retail market in Shanghai. Spatial econometrics techniques are first introduced into the empirical retail rent research to produce a more precise estimation.

Energy performance certification as a signal of workplace quality

Energy performance labelling and certification have been introduced widely to address market failures affecting the uptake of energy efficient technologies, by providing a signal to support decision making during contracting processes. The UK has recently introduced the Energy Performance Certificate (EPC) as a signal of building energy performance. The aims of this article are: to evaluate how valid EPC's are signals of occupier satisfaction with office facilities; and to understand whether occupant attitudes towards environmental issues have affected commercial office rental values. This was achieved by surveying occupant satisfaction with their workplaces holistically using a novel multi-item rating scale which gathered 204 responses. Responses to this satisfaction scale were matched with the corresponding EPC and rental value of occupier's workplaces. The satisfaction scale was found to be both a reliable and valid measure. The analysis found that EPC asset rating correlates significantly with occupant satisfaction with all facility attributes. Therefore, EPC ratings may be considered valid signals of overall facility satisfaction within the survey sample. Rental value was found to correlate significantly only with facility aesthetics. No evidence suggests rental value has been affected by occupants' perceptions towards the environmental impact of facilities. © 2013 The Authors.

Effects of red brick production on land use, household income, and greenhouse gas emissions in Khartoum, Sudan

In Khartoum (Sudan) a particular factor shaping urban land use is the rapid expansion of red brick making (BM) for the construction of houses which occurs on the most fertile agricultural Gerif soils along the Nile banks. The objectives of this study were to assess the profitability of BM, to explore the income distribution among farmers and kiln owners, to measure the dry matter (DM), nitrogen (N), phosphorus (P), potassium (K) and organic carbon (C_org) in cow dung used for BM, and to estimate the greenhouse gas (GHG) emissions from burned biomass fuel (cow dung and fuel wood). About 49 kiln owners were interviewed in 2009 using a semi-structured questionnaire that allowed to record socio-economic and variable cost data for budget calculations, and determination of Gini coefficients. Samples of cow dung were collected directly from the kilns and analyzed for their nutrients concentrations. To estimate GHG emissions a modified approach of the Intergovernmental Panel on Climate Change (IPCC) was used. The land rental value from red brick kilns was estimated at 5-fold the rental value from agriculture and the land rent to total cost ratio was 29% for urban farms compared to 6% for BM. The Gini coefficients indicated that income distribution among kiln owners was more equal than among urban farmers. Using IPCC default values the 475, 381, and 36 t DM of loose dung, compacted dung, and fuel wood used for BM emit annually 688, 548, and 60 t of GHGs, respectively.

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.

Retention rates, re-investment and depreciation in European office markets

The retention rate of a company has an impact on its earnings and dividend growth. Lease structures and performance measurement practice force real estate investment managers to adopt full distribution policies. Does this lead to lower income growth in real estate? This paper examines several European office markets across which the effective retention rates vary. It then compares depreciation rates across these markets. It is concluded that there is evidence of a relationship between retention and depreciation. Those markets with particularly inflexible lease structures exhibit low retention rates and higher levels of rental value depreciation. This poses interesting questions concerning the appropriate way to measure property performance across markets exhibiting significantly different retention rates and also raises important issues for global investors.

Benchmarking and valuation issues in measuring depreciation for European office markets

Purpose – The paper addresses the practical problems which emerge when attempting to apply longitudinal approaches to the assessment of property depreciation using valuation-based data. These problems relate to inconsistent valuation regimes and the difficulties in finding appropriate benchmarks. Design/methodology/approach – The paper adopts a case study of seven major office locations around Europe and attempts to determine ten-year rental value depreciation rates based on a longitudinal approach using IPD, CBRE and BNP Paribas datasets. Findings – The depreciation rates range from a 5 per cent PA depreciation rate in Frankfurt to a 2 per cent appreciation rate in Stockholm. The results are discussed in the context of the difficulties in applying this method with inconsistent data. Research limitations/implications – The paper has methodological implications for measuring property investment depreciation and provides an example of the problems in adopting theoretically sound approaches with inconsistent information. Practical implications – Valuations play an important role in performance measurement and cross border investment decision making and, therefore, knowledge of inconsistency of valuation practice aids decision making and informs any application of valuation-based data in the attainment of depreciation rates. Originality/value – The paper provides new insights into the use of property market valuation data in a cross-border context, insights that previously had been anecdotal and unproven in nature.

Internal rents and corporate property management: a study into the use of internal rents in UK corporate organisations

Research in the late 1980s showed that in many corporate real estates users were not fully aware of the full extent of their property holdings. In many cases, not only was the value of the holdings unknown, but there was uncertainty over the actual extent of ownership within the portfolio. This resulted in a large number of corporate occupiers reviewing their property holdings during the 1990s, initially to create a definitive asset register, but also to benefit from an more efficient use of space. Good management of corporately owned property assets is of equal importance as the management of other principal resources within the company. A comprehensive asset register can be seen as the first step towards a rational property audit. For the effective, efficient and economic delivery of services, it is vital that all property holdings are utilised to the best advantage. This requires that the property provider and the property user are both fully conversant with the value of the property holding and that an asset/internal rent/charge is made accordingly. The advantages of internal rent charging are twofold. Firstly, it requires the occupying department to “contribute” an amount to the business equivalent to the open market rental value of the space that it occupies. This prevents the treating of space as a free good and, as individual profit centres, each department will then rationalise its holdings to minimise its costs. The second advantage is from a strategic viewpoint. By charging an asset rent, the holding department can identify the performance of its real estate holdings. This can then be compared to an internal or external benchmark to help determine whether the company has adopted the most efficient tenure pattern for its properties. This paper investigates the use of internal rents by UK-based corporate businesses and explains internal rents as a form of transfer pricing in the context of management and responsibility accounting. The research finds that the majority of charging organisations introduced internal rents primarily to help calculate true profits at the business unit level. However, less than 10% of the charging organisations introduced internal rents primarily to capture the return on assets within the business. There was also a sizeable element of the market who had no plans to introduce internal rents. Here, it appears that, despite academic and professional views that internal rents are beneficial in improving the efficient use of property, opinion at the business and operational level has not universally accepted this proposition.

Is intrinsic energy efficiency reflected in the pricing of office leases?

This paper investigates whether the intrinsic energy efficiency rating of an office building has a significant impact on its rental value. A sample of 817 transactions for offices with Energy Performance Certificates (EPCs) in the UK is used to assess whether a pricing differential can be identified, depending on the energy rating. While previous analyses of this topic have typically relied on appraisal-based and/or asking rent data, the dataset used in this research contains actual contract rents as well as information on lease terms. The results indicate a significant rental premium for energy-efficient buildings. However, it is found that this premium appears to be mainly driven by the youngest cohort of state-of-the-art energy-efficient buildings. The results also show that tenants of more energy-efficient buildings tend to pay a lower service charge, but this link appears to be rather weak and limited to newer buildings. Hence, it is argued that the information contained in the EPC is still not fully taken into account in the UK commercial property market with the possible exception of both the highest and the lowest EPC ratings.

Investment performance within urban regeneration locations

Purpose – Property performance indices have invariably focused upon prime markets with a variety of approaches used to measure investment returns. However, there is relatively little knowledge regarding the investment performance of property in regeneration areas. Indeed, there is a perception that such locations carry increased risk and that the returns achieved may not be sufficient to offset the added risk. The main objective of this paper, therefore, is to construct regeneration property performance indicators consistent with the CBRE rent index and average yield monitor.

Design/methodology/approach – Local market experts were asked to estimate rents and yields for hypothetical standardised offerings for a range of regeneration locations throughout the UK, covering the period 1995 to 2002.

Findings – The results show that rental growth was similar in regeneration locations compared to the prime market. However, the analysis highlights a major yield shift for property in regeneration areas in the short to medium term. The downward pressure in yields would suggest that once a regeneration area becomes established and rental growth emerges, investor interest is stimulated resulting in increased competition and a shortening of yields.

Originality/value – The significance of this research is the quantification of property investment performance from regeneration areas that previously has not been available to investment institutions and decision makers. From a policy perspective this analysis is of relevance in confirming the maturing of locations that have received high levels of public sector support and indicating the effectiveness of regeneration policy mechanisms in creating sustainable urban environments capable of meeting private sector investment goals.

Cultivo multitrófico e multiespacial do camarão-da-amazônia e tilápia-do-nilo, com e sem o uso de substratos

Pós-graduação em Aquicultura - FCAV

Population. Education.

At head of title: United States Dept. of Commerce. Bureau of the Census.

Building a successful partnership to increase affordable rental housing supply in Queensland

Accessibility to housing for low to moderate income groups in Australia has been experiencing a severe decline since 2001. On the supply side, the public sector has been reducing its commitment to the direct provision of public housing. Despite high demand for affordable housing, there has been limited supply generated by non-government housing providers. One possible solution to promote an increase in affordable housing supply, like other infrastructure, is through the development of multi-stakeholder partnerships and private financing. This research aims to identify current issues underlying decision-making criteria for building multi-stakeholder partnerships to deliver affordable housing projects. It also investigates strategies for minimising risk and ensuring the financial outcomes of these partnership arrangements. A mix of qualitative in-depth interviews and quantitative surveys has been used as the main method to explore stakeholder experiences regarding their involvement in partnership arrangements in the affordable housing sector in Queensland. Two sets of interviews were conducted following an exploratory pilot study: one set in 2003-2004 and the other in 2007-2008. There were nineteen respondents representing government, private and not-for-profit organisations in the first stage interviews and surveys. The second stage interviews were focussed on twenty-two housing providers in South East Queensland. Initial analyses have been conducted using thematic and statistical analyses. This study extends the use of existing decision making tools and combines the use of a Soft System Framework to analyse the ideal state questionnaires using qualitative thematic analysis. Soft System Methodology (SSM) has been used to analyse this unstructured complex problem by using systematic thinking to develop a conceptual model and carrying it to the real world situations to solve the problem. This research found that the diversity of stakeholder capability and their level of risk acceptance will allow partnerships to develop the best synergies and a degree of collaboration which achieves the required financial return within acceptable risk parameters. However, some of the negativity attached to future commitment to such partnerships has been found to be the anticipation of a worse outcome than that expected from independent action. Many interviewees agree that housing providers' fear of financial risk and community rejection has been central to dampening their enthusiasm for entering such investment projects. The creation of a mixed-use development structure will mitigate both risk and return as the commercial income will subsidise the affordable housing development and will normalise concentration of marginalised low-income people who live in a prime location with an award winning design. In addition, tenant support schemes and rent-to-buy incentive programs will encourage them to secure their tenancies and significantly reduce the risk of rent arrears and property damage. There is also a breakthrough investment vehicle offered by the social developer which sells the non-physical but financial product to individual and institutional investors to mitigate further financial risk. Finally, this study recommends modification of the current value-for-money framework in favour of broader partnership arrangements which are more closely aligned with risk minimisation strategies.

Implications of the National Rental Affordability Scheme on the valuation of residential property

The provision of shelter is a basic need and in Australia there has been a history of home ownership. However recent economic growth and rising construction costs, particularly over the past decade, has placed home ownership out of reach for some. In response to increased affordability pressures, the Australian Federal Government established the National Rental Affordability Scheme (NRAS) in 2008. The aim of establishing the NRAS initiative is to stimulate the supply of new affordable rental dwellings, targeting 50,000 new properties by June 2012, through the provision of a National Rental Incentive for each “approved” dwelling. To be approved the dwelling must be newly constructed and subsequently rented to eligible low and moderate income households at rentals no greater than 80 percent of market rates. There is a further requirement that the accommodation be provided as part of the scheme for no less than 10 years. The requirement to provide new residential accommodation at below market rentals for no less than 10 years has an impact on value and as such the valuation methodologies employed. To give guidance to valuers this paper investigates the scheme, the impact on value and expectations for the future.