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Article

Tony McGough, Sotiris Tsolacos and Olli Olkkonen

The aim of this paper is to forecast the office property returns in Helsinki CBD using both short‐run and long‐run econometric specifications. Real economy, monetary and…

Abstract

The aim of this paper is to forecast the office property returns in Helsinki CBD using both short‐run and long‐run econometric specifications. Real economy, monetary and financial market indicators are included in these specifications to explain the variation in office property returns and forecast them. The paper illustrates the steps that analysts can follow to select models based on common diagnostics criteria and ex post forecasting evaluation tests. The findings of this research are in accordance with the results of previous comparative research in Europe and suggest that the growth of the gross domestic product in Finland is a key variable for modelling and forecasting office property returns in Helsinki. Moreover, the analysis indicated that information from a long‐run relationship of the gross domestic product and the real office return index should be monitored in the future as a way of improving the forecasts through an error correction model. It is predicted that Helsinki office returns will show a growth of about 7.1 per cent on average in the period 1999‐2001.

Details

Journal of Property Investment & Finance, vol. 18 no. 6
Type: Research Article
ISSN: 1463-578X

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Article

Justin D. Benefield

The purpose of the study is to introduce modeling of common neighborhood amenities as packages, rather than as separate independent variables in a single model. Results…

Abstract

Purpose

The purpose of the study is to introduce modeling of common neighborhood amenities as packages, rather than as separate independent variables in a single model. Results from the standard modeling technique of including separate controls for each amenity are provided for comparison. A secondary purpose is to provide price and time‐on‐market implications for amenities in seasoned versus newly constructed properties.

Design/methodology/approach

Common neighborhood amenities are grouped according to the total amenity bundle offered by each neighborhood. Hedonic pricing, hazard modeling, and two‐stage least squares regression are used to estimate price and time‐on‐market impacts for six common amenities.

Findings

Neighborhood tennis courts, clubhouses, boating facilities, and golf courses, as well as several amenity packages, significantly impact property values. Valuation of particular amenity packages differs between newly constructed and seasoned homes. Time‐on‐market results are less convincing.

Research limitations/implications

Neighborhood amenities considered separately can produce misleading results, so amenity packages should be included in future research. Specific numerical results would not apply to other markets and perhaps not to other time periods.

Practical implications

The study offers evidence regarding which neighborhood amenities are valued most highly in newly constructed properties, which is of interest to developers. The study also offers evidence on which amenities are valued more highly in seasoned properties, which is of interest to buyers due to concerns about re‐sale values.

Originality/value

The study offers the first grouping of neighborhood amenities into packages to more closely resemble the way buyers consider amenities during the purchase decision. The study is also the first comprehensive survey of commonly‐offered neighborhood amenities.

Details

Property Management, vol. 27 no. 5
Type: Research Article
ISSN: 0263-7472

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Article

Maurizio d’Amato

This paper aims to propose a new valuation method for income producing properties. The model originally called cyclical dividend discount models (d’Amato, 2003) has been…

Abstract

Purpose

This paper aims to propose a new valuation method for income producing properties. The model originally called cyclical dividend discount models (d’Amato, 2003) has been recently proposed as a family of income approach methodologies called cyclical capitalization (d’Amato, 2013; d’Amato, 2015; d’Amato, 2017).

Design/methodology/approach

The proposed methodology tries to integrate real estate market cycle analysis and forecast inside the valuation process allowing the appraiser to deal with real estate market phases analysis and their consequence in the local real estate market.

Findings

The findings consist in the creation of a methodology proposed for market value and in particular for mortgage lending determination, as the model may have the capability to reach prudent opinion of value in all the real estate market phase.

Research limitations/implications

Research limitation consists mainly in a limited number of sample of time series of rent and in the forecast of more than a cap rate or yield rate even if it is quite commonly accepted the cyclical nature of the real estate market.

Practical implications

The implication of the proposed methodology is a modified approach to direct capitalization finding more flexible approaches to appraise income producing properties sensitive to the upturn and downturn of the real estate market.

Social implications

The model proposed can be considered useful for the valuation process of those property affected by the property market cycle, both in the mortgage lending and market value determination.

Originality/value

These methodologies try to integrate in the appraisal process the role of property market cycles. Cyclical capitalization modelling includes in the traditional dividend discount model more than one g-factor to plot property market cycle dealing with the future in a different way. It must be stressed the countercyclical nature of the cyclical capitalization that may be helpful in the determination of mortgage lending value. This is a very important characteristic of such models.

Details

Journal of European Real Estate Research, vol. 10 no. 2
Type: Research Article
ISSN: 1753-9269

Keywords

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Article

Moshe Szweizer

The purpose of this paper is to extend the studies of commercial property yields by providing a cross-field approach through the implementation of methods used in physics.

Abstract

Purpose

The purpose of this paper is to extend the studies of commercial property yields by providing a cross-field approach through the implementation of methods used in physics.

Design/methodology/approach

Based on the equations used to describe real gases in physics, the commercial property yields are expressed through a model, as a product of two terms. The first term estimates the influence of the income change and investment on yields. The second estimates the yield variation as a function of property size. Additionally, the model combines the macroeconomic and microeconomic components influencing yield adjustment. Calculation of each component involves procedures developed in physics, with the investment volume being linked to the amount of gas and the microeconomic yield being linked to the gas compressibility.

Findings

The model was applied to the Auckland office and industrial markets, both to the historic and current cycle. At the macro-level, it was found that the use of accumulation of investment over a relevant cycle, results in a high data to model correlation. When modelling the yields at the micro-level, a relationship between the outlying properties and the yield softening was observed.

Practical implications

The paper provides an enhanced modelling power through association of the cyclic and investment activity with the yield change. Moreover, the model may be used to decouple the local and the international investment components and the extent of their influence on the local property market. Furthermore, it may be used to estimate the influence of the property size on the yield.

Originality/value

This research provides a new cross-field application of modelling techniques and enhances the understanding of factors influencing yield adjustments.

Details

Journal of Property Investment & Finance, vol. 37 no. 1
Type: Research Article
ISSN: 1463-578X

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Article

Moshe Szweizer

The purpose of this paper is to extend the studies of commercial property cycles by providing a cross-field approach to property markets modelling.

Abstract

Purpose

The purpose of this paper is to extend the studies of commercial property cycles by providing a cross-field approach to property markets modelling.

Design/methodology/approach

The approach allows for the incorporation of market shocks into the property cycle model as fundamental building blocks; assessment of overall market absorption generated through cyclic activity; and timing estimation of major market events. An ideal model is first constructed, which relies on an observation that a property cycle consists of four distinctive phases. These are described formally through appropriate formulae. Subsequently, it is observed that an analogous cyclic behaviour is described in physics as the Otto cycle. The formulae derived in physics for the Otto cycle are now redefined so to be applicable to the property market.

Findings

The model has been applied to the London office market, both to the historic and the current data sets. This allowed for the comparison of model predicted absorption and vacancies with the historic records, providing for assessment of the model accuracy. The model predicted that absorption was also compared with historic space supply allowing for estimation of oversupply and resultant vacancies. London office submarkets were analysed and compared to each other, allowing for estimation of their relative attractiveness as perceived by tenants and developers.

Practical implications

The model may be used to estimate cycle generated absorption; therefore, over and under supply of space due to developers’ activity may be assessed. It is also possible to use the model to assess the timing of future market peaks and troughs.

Originality/value

This is the first research directly applying the methodology developed in physics to commercial property cycles.

Details

Journal of Property Investment & Finance, vol. 36 no. 3
Type: Research Article
ISSN: 1463-578X

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Article

Moshe Szweizer

The purpose of this study is to provide a chaos theory-based framework, which can be used to model commercial property market dynamics.

Abstract

Purpose

The purpose of this study is to provide a chaos theory-based framework, which can be used to model commercial property market dynamics.

Design/methodology/approach

The paper is presented in two parts. In the first, rigorous mathematical reasoning is entertained, so to derive an attractor describing a set of feedback formulae. In the second part, the attractor definition is used to model the Auckland commercial office market. The model is exposed through a set of seven scenarios allowing for analysis of the market behaviour under various exogenously imposed conditions.

Findings

The general behaviour of the model is in agreement with the commercial property market conduct observed in Auckland. The model provides information related to the market turning points and allows for an explanation of some intricate market dynamics. These include the anatomy of a market peak and its response to the liquidity oversupply.

Practical implications

The model may be used to expand our understanding of the market performance under various exogenically imposed conditions, which allows for planning of market interventions in a more refined manner.

Originality/value

The paper is original, in the way the chaos theory is applied to the property markets modelling and allows for expanding the understanding of the market behaviour.

Details

Journal of Property Investment & Finance, vol. 38 no. 6
Type: Research Article
ISSN: 1463-578X

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Article

Peter F. Colwell and Catherine Jackson

Models of the commercial property market have become increasingly sophisticated in recent years. However, the retail sector and, more specifically, analysis of retail…

Abstract

Models of the commercial property market have become increasingly sophisticated in recent years. However, the retail sector and, more specifically, analysis of retail markets at the local level, have been comparatively neglected. This paper makes inroads into this gap in property research. Retail rental change at the local level is explored, focusing on consumer expenditure as the key determinant of change. The appropriateness of proxy variables is investigated and the mechanisms of rental change are examined. This highlights issues and difficulties unique to local level analysis. Following this, the relationship between rental change and underlying changes in consumer expenditure is investigated. The stability of a panel model of rental change is examined, with differences in market functioning identified across diverse groups of key local retail investment markets. These differences highlight the re‐emergence of northern markets during both the economic decline and recovery phases of the last decade of the 20th century. Rental levels in larger and smaller markets are also seen to respond to changes in consumer expenditure to significantly different degrees, in periods of both decline and recovery.

Details

Journal of Property Investment & Finance, vol. 22 no. 5
Type: Research Article
ISSN: 1463-578X

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Article

Tracey West and Andrew C Worthington

This paper employs a Generalised Autoregressive Conditional Heteroske‐dasticity in Mean (GARCH‐M) model to consider the effect of macroeconomic factors on Australian…

Abstract

This paper employs a Generalised Autoregressive Conditional Heteroske‐dasticity in Mean (GARCH‐M) model to consider the effect of macroeconomic factors on Australian property returns over the period 1985 to 2002. Three direct (office, retail and industrial property) and two indirect (listed property trust and property stock) returns are included in the analysis, along with market returns, short, medium and long‐term interest rates, expected and unexpected inflation, construction activity and industrial employment and production. In general, macroeconomic factors are found to be significant risk factors in Australian commercial property returns. However, the results also indicate that forecast accuracy in these models is higher for direct office, listed property trust and property stock returns and that the persistence of volatility shocks varies across the different markets, with volatility half lives of between five and seven months for direct retail and industrial property, two and three months for direct office property and less than two months with both forms of indirect property investment.

Details

Journal of Financial Management of Property and Construction, vol. 11 no. 2
Type: Research Article
ISSN: 1366-4387

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Article

Michael White, Daniel Mackay and Kenneth Gibb

This paper uses time series econometric techniques to model regional property rents in order to build a picture of the distinctiveness and commonality of the Scottish…

Abstract

This paper uses time series econometric techniques to model regional property rents in order to build a picture of the distinctiveness and commonality of the Scottish property sector. Data used comes from a series stretching from 1970‐1998 and allows Scotland’s market performance (in terms of rents) in each of the three main property sectors to be benchmarked against a selective comparison of other UK regions. In doing so, we pay particular attention to the statistical properties of the time series used, applying tests of data stationarity and cointegration to develop a reduced form model of rents comprising both demand and supply‐side variables. The paper develops a predictive approach to property rents based on the autoregressive moving average (ARMA) methodology. Initial within‐sample predictive power is reasonably high. The implications of our results for a better understanding of the Scottish property market, as well as the more general modelling, are sketched out.

Details

Journal of Property Investment & Finance, vol. 18 no. 3
Type: Research Article
ISSN: 1463-578X

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Article

Jayantha Wadu Mesthrige

The purpose of this study is to estimate an empirical model for new office space development starts, based on the theoretical treatment of urban growth. The study…

Abstract

Purpose

The purpose of this study is to estimate an empirical model for new office space development starts, based on the theoretical treatment of urban growth. The study introduces a new parameter, namely, office space-usage pattern, to the office space development equation and tests whether developers respond to non-price measures in deciding to commence new developments.

Design/methodology/approach

The study first introduces a co-integration approach based on an error correction model to test for long-run relations and short-run dynamics of new office space development. A multivariate regression model is then introduced to identify significant determinants that influence office development starts. The study uses annual data over a time span of 30 years.

Findings

Estimated results provide strong evidence that the newly introduced parameter exerts a positive impact on new office space development. It suggests that if the average floor space per employee changes by one percentage point, new office development starts would change by 1.5 percentage point, indicating even a marginal change in floor-space usage per employee (SPE) would have a significant impact on new office space development. Empirical estimates also suggest a strong response of office development starts to the lagged land supply and office space stock.

Research limitations/implications

The paper raises the concern about the importance of non-price measures of the supply-side of the office market. There is scope to address the research questions using better data sets. It is also possible to model the supply adjustment process more dynamically in an error correction framework.

Practical implications

The findings would suggest that non-price measures, such as space-usage pattern, need to be taken into account when planning and estimating future office space needs. This finding provides valuable insight for our current knowledge on factors affecting new office supply.

Originality/value

This is the first study to introduce office floor space usage as a determinant of office development starts in an urban growth conceptual framework for the Hong Kong office market.

Details

Facilities, vol. 32 no. 11/12
Type: Research Article
ISSN: 0263-2772

Keywords

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