Real estate investment in global financial centers: risk, return and contagion

Global financial activity is heavily concentrated in a small number of world cities –international financial centers. The office markets in those cities receive significant flows of investment capital. The growing specialization of activity in IFCs and innovations in real estate investment vehicles lock developer, occupier, investment, and finance markets together, creating common patterns of movement and transmitting shocks from one office market throughout the system. International real estate investment strategies that fail to recognize this common source of volatility and risk may fail to deliver the diversification benefits sought

International financial centres, office market rents and volatility

Despite continuing developments in information technology and the growing economic significance of the emerging Eastern European, South American and Asian economies, international financial activity remains strongly concentrated in a relatively small number of international financial centres. That concentration of financial activity requires a critical mass of office occupation and creates demand for high specification, high cost space. The demand for that space is increasingly linked to the fortunes of global capital markets. That linkage has been emphasised by developments in real estate markets, notably the development of global real estate investment, innovation in property investment vehicles and the growth of debt securitisation. The resultant interlinking of occupier, asset, debt and development markets within and across global financial centres is a source of potential volatility and risk. The paper sets out a broad conceptual model of the linkages and their implications for systemic market risk and presents preliminary empirical results that provide support for the model proposed

Maestros and mythologies: some lockdown reflections

PurposeThe paper reflects upon the tendency of participants in the commercial real estate markets to give excess status to individuals in decision-making and to hold beliefs that are at best weakly supported empirically.Design/methodology/approachThe paper is reflexive in nature, using experiential reflection to consider institutional processes in the real estate market. It is important to use “methodology” correctly and not as a synonym of “method”.FindingsUsing reflexive mode, the paper does not have “findings” as such: if the views expressed are accepted, then a research agenda to understand decision-making processes is implied.Research limitations/implicationsThe nature of reflection is that it follows from the writer's experiential processes and interpretations. The reader may come from a different stance. Broadly accepting the propositions points to the need for a contextual analysis of decision-making processes in private real estate and consideration of the implications of privileging individual idiosyncratic decisions over analytic procedures.Practical implicationsPrior research has demonstrated the lack of a back-testing culture in real estate that would allow empirical analysis of the consequences of “gut feel” decisions overriding modelled analysis; further, entrenched beliefs about the drivers of market performance might result in misallocation of resources.Social implicationsResource allocation in commercial real estate has important consequences for land use and urban and regional development.Originality/valueThe paper reflects the views and experience of the author based on over 30 years of research into commercial real estate.Non

A spatial-temporal assessment of the Land Value Development Tax

A pure land tax is market neutral because of being entirely paid by lowering prices in land supplied to the market; however it is an almost unattainable public policy objective. A Land Value Development Tax (LVDT) may be an alternative possibility, when levied where regulatory or infrastructural state interventions determine land prices increases. Even when the LVDT is still paid by means of a lowering of land prices (static neutrality), it might accelerate development timing (non-dynamic neutrality), and it can also have price increasing spatial feedback effects when not applied on all the spatial units of a region. We examine the LVDT applied in Bogotá (Colombia) during 2004-2010. This city offers an excellent opportunity for policy assessment since it has both a clearly determined pre and post-tax period, and spatial differences in application. This paper uses spatial panels to assess the LVDT impact on prices. We found that the LVDT had a negative effect on prices while not having any building output, or spatial feedback effects. The results allow us to conclude that the LVDT fulfils the static and dynamic neutrality conditions of a Pure Land Tax in spite of its scattered spatial implementation.This is the author accepted manuscript. The final version is available from Elsevier via http://dx.doi.org/10.1016/j.landusepol.2015.09.02

An empirical approach to urban land monopoly: A case study of the city of Barranquilla, Colombia

In this paper, we focus on the role and economic effect of land ownership and land monopoly in emerging urban environments. Land monopoly in conventional economics is a theoretical ‘impossibility’ which, nonetheless, allows for a spatial empirical approach. We design a spatial land monopoly test of our own, understood as a pricing strategy where land prices can be ‘over and above’ those determined by city-wide location, urban regulation and externalities. We use the city of Barranquilla (Colombia) as a case study. This city offers ideal conditions for investigation of theories of land monopoly, given extreme land concentration in its highly regulated elite northern fringe. We found no evidence of land monopoly pricing using different specifications of the spatial tests, which conformed to standard urban economic expectations: the pattern of development pointing to different, political channels influencing development. Non

How active is your real estate fund manager?

Using a holdings-based measure of active management termed the ‘Segment Active Share’, the paper documents that commercial real estate portfolios that are more active – i.e., have segment weights which are least like those of the index – have outperformed. Employing proprietary IPD data for 256 U.K. real estate funds over 2002-2011, we find that funds with high Segment Active Share on average outperformed the real estate market by 1.9% per year. These funds do not seem to take increased risk and their outperformance cannot be explained by fund size alone, though on average they are smaller funds.This paper was sponsored by Aberdeen Asset Management PLC and was independently written by the authors.This is the accepted manuscript of a paper published in the Journal of Alternative Investments (Cremers M, Lizieri C, Journal of Alternative Investments, 2015, 18, 22-36, doi:10.3905/jai.2015.18.1.022). The final version is available at http://dx.doi.org/10.3905/jai.2015.18.1.02

Asymmetric adjustment in the City of London office market

Earlier estimates of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicitly modeling of asymmetric space market responses to employment and supply shocks. A long run structural model linking real rental levels, office-based employment and the supply of office space is estimated and then rental adjustment processes are modeled using an error correction model framework. Rental adjustment is seen to be asymmetric, depending both on the direction of the supply and demand shocks and on the state of the space market at the time of the shock. Vacancy adjustment does not display asymmetries. There is also a supply adjustment equation. Two three-equation systems, one with symmetric rental adjustment and the other with asymmetric adjustment, are subjected to positive and negative shocks to employment. These illustrate differences in the two systems

City profile: Chongqing (1997–2017)

Chongqing has made remarkable progress in economic and social development since it was granted provincial city status in 1997. The city had become a leading economic centre for the upper part of the Yangtze River region and a focal point for an experiment in coordinated urban-rural development. How did the city accomplish such an impressive achievement in spite of the impact of the Global Financial Crisis from 2007 and the political turbulence of 2012? To answer this question, we summarise the economic and social developments in Chongqing over the last two decades and demonstrate how the Chongqing model helped the city to sustain fast economic development whilst achieving urban-rural integration. Given that Chongqing is set to be a critical hub in the ‘One Belt, One Road’ (OBOR) initiative, this article provides a comprehensive update on the 2001 version of the Chongqing city profile, which was published shortly after the city became the fourth municipality directly under the control of central government. In addition, we discuss the lessons that some Chinese cities can learn from the Chongqing model when dealing with housing affordability issues and the challenges and opportunities for Chongqing in the OBOR initiative.ESR

A behavioral interpretation of the nav discount puzzle in listed real estate companies

The NAV discount is a long standing puzzle in the listed real estate context. In this paper we extend the existing literature’s rational and noise trader explanations by exploring the influence of specific irrational behaviors. Based on behavioral biases identified in the stock and real estate markets, we hypothesize the existence of a relationship between lagged NAV growth and the NAV discount. The findings provide initial evidence of trend-chasing behavior between the dual real estate markets. The results have broader implications for the perception of the relationship between public and private real estate markets

“Smarter information, smarter consumers”? Insights into the housing market

This study, we explores how information helps housing consumers make informed decisions and discusses potential market outcomes. Specifically, wWe analyse the interaction between the disclosure of information on property conditions and the disparity between home sellers’ willingness to accept (WTA) of home sellers and the home buyers’ willingness to pay (WTP) of home buyers. Three hypotheses are derived and validated through field experimental investigation within the property market. We find that the WTA–WTP disparity exists. The discussed policy instrument for information disclosure appears to function as expected. The release of information helps consumers adjust their judgment and estimation of future maintenance cost in the direction of true probability, reduces the time and monetary costs of searching information and corrects the high risk-premium they demand in buying resale properties. The WTA–WTP disparity is considerably reduced after information disclosure, and market liquidity and efficiency are improved. This study is an important complement to prior research on how information changes the behaviour of consumers in housing markets. Findings can inform the central government about the wide use of smart disclosure in the near future, as well as the scope, format and structure of information to be supplied to general housing consumers.National Natural Science Foundation of China (Project #71231005 and #71671076) and the technical support of China Index Academy