Corporate real estate and performance: evidence from Italian manufacturing sectors

Abstract

Purpose

The purpose of this paper is to analyse the effect of real estate weight on Italian manufacturing companies and the effect of occupancy costs on income. The main purpose is to understand whether the ownership of properties, for non-real-estate companies, has an impact on performance.

Design/methodology/approach

The empirical research was carried out for a 10-year period (2004-2013) with a sample of 300 manufacturing companies belonging to six sub-sectors of the manufacturing sector. In the second part, a cluster analysis was conducted to identify better and more poorly performing companies. Companies were classified in different clusters according to their ROA, debt ratio and liquidity ratio. The analysis from the first part was repeated to verify the differences between the clusters with respect to their real estate holdings.

Findings

First, the authors found that manufacturing sub-sectors do not differ in terms of real estate holdings. They found that real estate holdings affect performance: companies with lower real estate asset weight and higher occupancy costs perform better.

Research limitations/implications

The main contribution of the paper is the finding that most Italian manufacturing companies do not take into account corporate real estate (CRE) decisions and the trade-off between ownership and leasing, thus showing that they are ineffective at CRE management.

Practical implications

It could be wise to pay more attention to the existing trade-off between the occupancy costs and the holdings of real estate as ownership, as a significant negative correlation between the two indicators was found for the best performing companies. However, the level of this correlation was still rather small. Moreover, to increase performance, companies should be able to recognise that maintaining constant investments in CRE is a better solution than increasing these investments and locking more capital into illiquid assets (which have lower returns than the core business), especially during periods of turmoil and financial crisis.

Originality/value

For the first time, the Italian manufacturing sector has been widely investigated.

Citation

Morri, G., Djukic, D. and Chiavazza, F. (2017), "Corporate real estate and performance: evidence from Italian manufacturing sectors", Journal of Corporate Real Estate, Vol. 19 No. 3, pp. 168-185. https://doi.org/10.1108/JCRE-07-2016-0026