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Article
Publication date: 24 August 2021

Tony McGough and Jim Berry

The financial and economic turmoil that resulted from the Global Financial Crisis (GFC), included a marked increase in the volatility in real estate markets. Property…

Abstract

Purpose

The financial and economic turmoil that resulted from the Global Financial Crisis (GFC), included a marked increase in the volatility in real estate markets. Property asset prices were impacted by the real economy and market sentiment, particularly concerning the determination of risk. In an economic downturn, the perception of investment risk becomes increasingly important relative to overall total returns, and thus impacts on yields and performance of assets. In a recovery phase, and particularly within an environment of historically low government bonds, risk and return compete for importance. The aim of this paper is to assess the interrelationships and impacts on pricing between real estate risk, yield modelling outcomes and market sentiment in selective European city office markets.

Design/methodology/approach

This paper specifically considers the modelling of commercial property pricing in relation to the appetite for risk in the financial markets. The paper expands on previous work by determining a specific measure of risk pricing in relationship to changing financial market sentiment. The methodology underpinning the research specifically examines the scope for using national and international risk pricing within specific real estate markets in Europe.

Findings

This paper addresses whether there is a difference between the impact of risk on the pricing of real estate in international versus regional cities in Europe. The analysis, therefore, determines which city centre office markets in Europe have been most impacted by globalisation including the magnitude on real estate prices and market volatility. The outcome of the paper provides important insights into how changes in risk preferences in the international capital markets have driven and continues to drive yield movements under different market conditions.

Research limitations/implications

The paper considers the driving forces which have led to the volatile movements of yields, emanating from the GFC.

Practical implications

This paper considers the property market effects on pricing of commercial real estate and the drivers in selected European cities.

Originality/value

The outcome of the paper provides important insights into how changes in risk preferences in the international capital markets have driven and continue to drive the yield movements in different real estate markets in Europe.

Details

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

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Article
Publication date: 8 January 2020

Tony McGough and Jim Berry

In the light of past financial and economic turmoil, there has been a marked increase in the volatility in real estate markets. This has impacted on the pricing of…

Abstract

Purpose

In the light of past financial and economic turmoil, there has been a marked increase in the volatility in real estate markets. This has impacted on the pricing of property assets, partly through market sentiment and particularly concerning risk. It also limits modelling accuracy model accuracy. The purpose of this paper is to create a new variable and model to enhance analysis of what drives real estate yields incorporating market sentiment to risk.

Design/methodology/approach

This paper specifically considers the modelling of property pricing within a volatile economic environment. The theoretical context begins by analysing the relationship between property yields and government bonds. The analytical context then moves on to specifically include a measurement of risk which stresses its role and importance in investment markets since the Global Financial Crisis. The model thus incorporates macroeconomic and real estate data, together with an international risk multiplier, which is calculated within the paper.

Findings

The paper finds the use of measurements of market sentiment and risk are more powerful tools for modelling yields than previous techniques alone.

Research limitations/implications

This is an initial paper outlining the creation of sentiment and risk measurements in the financial market and showing an example of its application to a commercial real estate market. The implication is that this could add a major new explanatory variable to modelling of yields.

Practical implications

The paper highlights the importance of risk in the pricing of commercial real estate, over and above normal variables. It highlights how this can help explain over and undershooting of yields within commercial real estate which would be of great importance in the investment world.

Originality/value

This paper attempts to explicitly measure market sentiment, pricing of risk and how this impacts real estate pricing.

Details

Journal of Property Investment & Finance, vol. 38 no. 5
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 October 1997

Éamonn D’Arcy, Sotiris Tsolacos and Tony McGough

Presents the findings of the first comparative econometric investigation into the influence of demand side forces on retail rent determination in European cities. Examines…

Abstract

Presents the findings of the first comparative econometric investigation into the influence of demand side forces on retail rent determination in European cities. Examines five major retail centres ‐ Amsterdam, Brussels, Hamburg, London and Paris ‐ over the period 1980 to 1994. Estimates for each city a theory consistent model which tests influences of GDP, retail sales and consumer expenditure on changes in retail rents. Univariate and multivariate regressions show that the relative explanatory capabilities of these influences exhibit a notable degree of variation between the cities. A time series cross‐sectional analysis demonstrates that contemporaneous changes in GDP are the most important common determinant of retail rents across the cities and that the process of rent determination in Paris is influenced by different structural factors from the other cities examined.

Details

Journal of Property Valuation and Investment, vol. 15 no. 4
Type: Research Article
ISSN: 0960-2712

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Article
Publication date: 1 December 2000

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
Publication date: 1 August 2005

Sotiris Tsolacos, Tony McGough and Bob Thompson

The aim of the present study is to assess the significance of cash flow and profitability survey data in the modelling and forecasting of industrial rents. These data…

Abstract

Purpose

The aim of the present study is to assess the significance of cash flow and profitability survey data in the modelling and forecasting of industrial rents. These data, taken from the British Chambers of Commerce regional surveys of the manufacturing sector, are used as a partial proxy for the affordability of industrial space occupiers. In the absence of direct profitability measures existing studies approximate this information indirectly through output and to some extent employment variables.

Design/methodology/approach

A cross‐section time‐series framework is deployed to model regional industrial rents using a set of output and employment variables. The empirical model is subsequently augmented with the inclusion of the cash flow and profitability measures.

Findings

Consistent with the findings of existing studies, changes in output are a significant influence on the variation of real industrial rents. Supportive evidence for turnover and profitability is found in four regions. In these regions cash flow variables contain additional information and improve the forecast performance of the base model. The empirical findings also extend to obtaining estimates after the BCC survey data are normalised with respect to the overall growth and the input costs manufacturers face in each of the regions.

Originality/value

The present study extends existing work on industrial rents by introducing more direct turnover and profitability series. Greater use of such series in property performance forecasting over short‐term horizons has the potential of resulting in smaller errors.

Details

Journal of Property Investment & Finance, vol. 23 no. 4
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 December 1995

Tony McGough and Sotiris Tsolacos

Applies the methodology adopted in contemporary business cycleresearch on establishing the stylized facts of aggregate outputfluctuations, in the context of the office…

Abstract

Applies the methodology adopted in contemporary business cycle research on establishing the stylized facts of aggregate output fluctuations, in the context of the office, industrial and retail building cycle. The objective of the study is to identify the degree to which cyclical regularities, which are in conformity with theoretical modelling, are identified across property sectors. Undertakes a statistical analysis of the cyclical properties of certain variables in relation to the building cycle in the respective commercial property sectors. The variables considered capture real economic conditions and trends in both the property and investment markets. The findings illustrate that certain variables display a cyclical pattern in relation to the property cycles which is in accordance with theoretical intuition. They also show that either other variables do not display any cyclical relationship to the commercial building cycles or the relationship does not conform to the predictions of the existing theoretical treatment of property development.

Details

Journal of Property Finance, vol. 6 no. 4
Type: Research Article
ISSN: 0958-868X

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Article
Publication date: 1 December 1995

Tony McGough and Sotiris Tsolacos

The application of short‐term forecasting techniques to theprediction of commercial rental values generates valuable informationabout the dynamics of rent movements. It…

Abstract

The application of short‐term forecasting techniques to the prediction of commercial rental values generates valuable information about the dynamics of rent movements. It also captures short‐run trends more effectively than do other forecasting procedures. Makes use of ARIMA models to provide one‐step‐ahead predictions. The results show that ARIMA models perform better in the case of retail and office sectors. The forecasts for these sectors are satisfactory. Retail rents bear a relationship to their past values, whereas office rents are influenced by shocks in the market – demand or supply driven. The results of the present study are useful for incorporation in more general models of rent forecasting. Also presents a full methodology which facilitates its application.

Details

Journal of Property Valuation and Investment, vol. 13 no. 5
Type: Research Article
ISSN: 0960-2712

Keywords

Content available

Abstract

Details

Journal of Property Investment & Finance, vol. 23 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 6 July 2015

Arvydas Jadevicius and Simon Huston

The commercial property market is complex, but the literature suggests that simple models can forecast it. To confirm the claim, the purpose of this paper is to assess a…

Abstract

Purpose

The commercial property market is complex, but the literature suggests that simple models can forecast it. To confirm the claim, the purpose of this paper is to assess a set of models to forecast UK commercial property market.

Design/methodology/approach

The employs five modelling techniques, including Autoregressive Integrated Moving Average (ARIMA), ARIMA with a vector of an explanatory variable(s) (ARIMAX), Simple Regression (SR), Multiple Regression, and Vector Autoregression (VAR) to model IPD UK All Property Rents Index. The Bank Rate, Construction Orders, Employment, Expenditure, FTSE AS Index, Gross Domestic Product (GDP), and Inflation are all explanatory variables selected for the research.

Findings

The modelling results confirm that increased model complexity does not necessarily yield greater forecasting accuracy. The analysis shows that although the more complex VAR specification is amongst the best fitting models, its accuracy in producing out-of-sample forecasts is poorer than of some less complex specifications. The average Theil’s U-value for VAR model is around 0.65, which is higher than that of less complex SR with Expenditure (0.176) or ARIMAX (3,0,3) with GDP (0.31) as an explanatory variable models.

Practical implications

The paper calls analysts to make forecasts more user-friendly, which are easy to use or understand, and for researchers to pay greater attention to the development and improvement of simpler forecasting techniques or simplification of more complex structures.

Originality/value

The paper addresses the issue of complexity in modelling commercial property market. It advocates for simplicity in modelling and forecasting.

Details

Journal of Property Investment & Finance, vol. 33 no. 4
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 1 February 2006

Nick De Viggiani

Prison social environments play an important role in the health of prisoners. How they respond to imprisonment is partially dependent upon how effectively they integrate…

Abstract

Prison social environments play an important role in the health of prisoners. How they respond to imprisonment is partially dependent upon how effectively they integrate into an institution’s social structure, learn to fit in with others and adapt to and cope with becoming detached from society, community and family ‐ hence, how they personally manage the transition from free society to a closed carceral community. This paper reports on findings of an ethnography conducted in an adult male training prison in England, which used participant observation, group interviewing, and one‐to‐one semi‐structured interviews with prisoners and prison officers. The research explored participants’ perceptions of imprisonment, particularly with regard to how they learned to adapt to and ‘survive’ in prison and their perceptions of how prison affected their mental, social and physical well‐being. It revealed that the social world of prison and a prisoner’s dislocation from society constitute two key areas of ‘deprivation’ that can have important health impacts.

Details

International Journal of Prisoner Health, vol. 2 no. 2
Type: Research Article
ISSN: 1744-9200

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