David Higgins

PurposeMulti-let industrial (MLI) estates are an emerging £15 billion UK real estate asset class that can offer attractive returns, a diversified income base, constrained supply and extensive management opportunities to add value within an operational platform. This investment appeal is supported by the evolving MLI occupier market with the growth of small to medium enterprises (SME) requiring modern urban business space driven in part by technology advances offering new streams of supply chain connectivity between businesses and potential clients at a local level.Design/methodology/approachTo understand more about MLI properties, this study utilises a hedonic pricing model to quantify property values as a function of defined variables. The dataset used for this research is a sample portfolio of 26 multi-let industrial properties. The dataset was analysed alongside eleven physical, financial and locational factors. Interestingly, the hedonic pricing model results showed that only fo...

The public sector is the largest UK landowner and space occupier with local authorities owning and managing the majority of the real estate assets to meet services to the community. As central funding of these services reduce and the knowledge economy is changing the way we live, local governments are looking at more efficient and effective ways of managing their real estate operations and creating investment value to bridge the gap between funding shortfalls and the demand for public services. Several local authorities are now investing in commercial properties as a way to generate long-term stable income streams although current practices are highlighting narrow portfolio diversification, management challenges, fee leakage and limited awareness of the knowledge economy on future real estate returns. This research paper examines the issues and provides a conceptual framework for a Sovereign Public Sector Property Fund which can create local level opportunities alongside a stable long term income stream. This can be achieved through a pooling of prime local government real estate assets to offer portfolio diversification with quality management, good governance, local authority appointed steering committee members and exposure to opportunities to benefit from aspects of the knowledge economy. Supported by central government, individual real estate assets in a Sovereign Public Sector Property Fund can provide a local destination with placemaking potential in the post COVID-19 era. Strengthening the connection between people and place, the real estate in the fund can be the catalyst for local employment opportunities and support surrounding communities. This exploratory study covers an important part of the UK economy and offers a valuable insight into creating a new real estate investment vehicle which can elevate the often underutilised prime local authority real estate assets.

The long-term decline in the historic high street has been an important issue for local communities, governments and real estate investors. This has led to significant discussions concerning the triggers of retail decline and consideration for how heritage themed high streets can evolve in the future and the associated resources for this to be achieved. Utilising a case study of Derby’s historical Cathedral Quarter, this paper explores (i) the issues involved in reversing the decline of retail in the traditional high street; (ii) the strategies used to sustain and improve the high street as a destination; and (iii) the role of heritage assets in improving business occupancy of high street premises. In order to provide an insight into the processes available to regenerate the high street and attract space occupiers, a series of semi-structured interviews were undertaken with leading real estate consultants and investment professionals. The research findings suggest there are multiple...

ABSTRACT There are many drivers of house prices. In urban locations, public infrastructure is considered one of the leading determinants. To explore this relationship, an Hedonic house pricing model was applied to an established Birmingham, the UK working class residential area which is serviced by the Metro Midland tram line. The selected Wednesbury Great Western Street station provides ease of access for the local residents to Birmingham and Wolverhampton City Centres plus there has been recent sale evidence of 100 properties within close proximity to the station. Independent variables consisted of a range of typical physical, locational and neighbourhood attributes for the Hedonic house pricing model input data. Based on the preferred linear Hedonic model, the findings from the recent 100 Wednesbury house sales showed property type, bedrooms, floor area, ambience and distance to the tram station were key explanatory factors in relation to pricing levels. On the evidence provided, property price increased by £16,878 for every km closer to the tram stop. However, when examining properties within defined distance bands with smaller datasets, the location to the tram station was not a significant statistical driver. This suggests that proximity to a public transport access point alongside key housing characteristics should form part of the housing decision making process as they are significant predictors of local house prices.

Corporate organisations operate in a dynamic competitive global environment where real estate decisions form an important part of a successful business operation. Fundamental considerations cover the drivers of possible disruption from core economic activity, structural change and unexpected (black swan) events. With documented increases in the frequency and magnitude of unforeseen, rare and extreme black swan events, this research examines an antifragility corporate real estate strategy that looks beyond likelihood and resilience to opportunities to manage and embrace key adverse known unknown random black swan events. Suggested strategies including modular locational operation units, knowledge sharing and real estate partnerships can form part of an antifragility real estate framework and assist global organisations to succeed where competitors fail in a world affected by increasingly large, highly improbable and unpredictable events.

Purpose – In these ever challenging times, conventional property decision theory appears inadequate to deal with black swan events: those unforseen, rare and extreme natural and man-made disasters. The paper aims to discuss these issues. Design/methodology/approach – This research maps, characterises and assesses these threats into: Known Knowns, Known Unknowns and Unknown Unknowns categories. Whereas, Known Knowns events can be managed and Unknown Unknowns events are difficult to even identify, those black swan Known Unknowns events that impact on a location, can be modelled based on available past and comparable evidence. Findings – As a starting point, black swan management tools can utilise available prediction-based scale indices to highlight the possibility of these extreme events occurring in locations, and so form an important consideration for property asset managers in their decision-making process. Originality/value – For property asset managers, this black swan managemen...

PurposeThe term “Black Swan” has gained recent popularity to describe an extraordinary event that causes extensive damage. The combination of low predictability and major impact makes an upswing in the magnitude of Black Swan events an important factor when making property market forecasts. The difficulty is that the preferred property forecast models traditionally depend on input data constructed on a normal (bell curve) conditions. As outliers, Black Swan events appear not to form part of the property forecast process. The aim of this research is to examine Black Swan events.Design/methodology/approachThis research examines Black Swan events and tests their impact on the accuracy of short term, six month bi‐annual survey forecasts from leading economists and property analysts for key Australian property market determinants: economic activity (GDP), ten year bonds and CBD office vacancy rates for the 2005‐2011 period.FindingsA range of statistical tests showed inconsistencies with ...

Purpose Uncertainties in residential property investment performance require that real estate assets are designed in a flexible manner to respond to impacts of market dynamics. Though estimating the cost of flexibility is straightforward, assessing the economic value of flexibility is not. The purpose of this study is to explore the potential practical application of real option analysis to determine the economic value of a switching output flexibility embedded in a residential property investment in Australia. The study involves the exploration of an optimal strategy for investment in a residential development through real option analysis and valuation of a mixed use investment. Design/methodology/approach The real option valuation model developed by McDonald and Siegel (1986) is adopted for the evaluation because the switching output flexibility is likened to a perpetual American call option with dividend payout. Findings Through real option analysis, the economic value of switchi...

Purpose Property market models have the overriding aim of predicting reasonable estimates of key dependent variables (demand, supply, rent, yield, vacancy and net absorption rate). These can be based on independent drivers of core property and economic activities. Accurate predictions can only be conducted when ample quantitative data are available with fewer uncertainties. However, a broad-fronted social, technical and ecological evolution can throw up sudden, unexpected shocks that result in the econometric outputs sceptical to unknown risk factors. Therefore, the purpose of this paper is to evaluate Australian office market forecast accuracy and to determine whether the forecasts capture extreme downside risk events. Design/methodology/approach This study follows a quantitative research approach, using secondary data analysis to test the accuracy of economists’ forecasts. The forecast accuracy evaluation encompasses the measurement of economic and property forecasts under the fol...

In broad terms, the main aim of a securitised property fund is to replicate the essence of a particular property index. The success of constructing such a fund depends less on the absolute returns it produces, but rather, how closely the returns match those of the benchmark (e.g. S&P/ASX A-REIT 300 index). Based on tracking error analysis, this research identified a range of passive, structured and active investment styles in the selected 16 wholesale securitised property funds. Interestingly, over the 2000-2007 period, the tracking errors rankings of the securitised property funds appeared unrelated to other key investment performance measures. In part, this could be due to the poor performance of the active and some structured securitised property funds during times of major market downturns. This is evident in comparing cumulative downside returns with and without outliers. This research illustrates how tracking error can categorise a fund's investment style. Placed alongside...

Abstract Commercial property is a physical asset class that forms an important part of the capital market universe. Due to illiquidity and high value thresholds, commercial property investment generally requires considerable equity and debt funding. Whilst debt funding can improve property investment returns, it substantially increases the level of risk. Over 28 years, on Australian data, the research showed the average indicative property floating and fixed lending rates were similar, in a range of 9.3% - 10.1% per annum. This compared to average desmoothed commercial property total returns of 10.2% per annum which included two periods of negative returns (March 1989 - September 1993 and September 2007 - September 2009). Overall, the application of high debt levels (80% leverage) can lead to a 30% improvement to annual commercial property total returns (13.3%), although the risk (volatility) is increased fivefold (11.4% to 57.3%) and can lead to a wide (280%) performance range. In demonstrating the impact of gearing levels on desmoothed total property return performance, recognition is required that the management of debt and the associated stability offuture property income is a central part of a property investment strategy.

Abstract This research examines the impact of debt on the performance of Australian unlisted wholesale property funds. The research benchmarked eight leading property funds leveraged and deleveraged performance to the corresponding property market indices. The results for the 2002–2009 period were mixed as to the leveraged property funds outperforming their respective property market indices. On removing debt, only one property fund managed to beat both the return and risk reading from the corresponding property market index. The marked variations between leveraged and deleveraged performance had limited impact on property fund rankings as it appeared the variation in commercial property lending rates had a greater impact than property fund leverage levels, which averaged 15.31%. To add to the familiar risk and return benchmarks, the risk adjusted performance (RAP) measure, first outlined by Modigliani and Modigliani (1997), provided a comparative return for a given level of risk. On quarterly unleveraged property fund data, the RAP 1.74%–3.25% range highlighted the considerable differences in the property funds performance for a given level of risk. Of the eight selected property funds, only one provided excess returns from portfolio selection. This RAP approach is a powerful investment tool, as it can highlight the property fund manager’s asset allocation capabilities to add value.

Purpose - In the context of housing, mixed tenure attempts to bring together social groups in urban neighbourhoods to create a vibrant dynamic sustainable community. This paper focuses on residential development design in the context of housing tenure where owner-occupier (or owner-investor) and social housing have the same locality. Specifically it asks: should different housing tenures be combined in a residential developed (salt and pepper design) or in close vicinity in separated structures (silo design)? Design/methodology/approach - This paper examines various factors to be considered with regards to the different mixed tenure designs. The research presents interviews with fourteen leading Melbourne property professionals (developers, consultants and financiers) to identify the different development design and tenure challenges. The semi-structured interviews were audio recorded, transcribed and coded through NVivo software to provide a platform to evaluate, interpret and expl...

Commercial property is an important investment asset class that can cover the four quadrants of the Australian investment market – debt/equity and private/public markets. On available data, the extent and composition of property within these sectors can be measured and compared to the wider Australian investment market. As at December 2004, the estimated size of the overall Australian investment market is AU$5.8 trillion of which Australian commercial property component represents AU$206 billion (4%). Of this amount the private commercial property sector comprises just over 55% and is distributed between debt AU$59 billion (28%) and equity AU$57 billion (27%) market. The publicly traded market (Listed Property Trusts) represents the largest component at AU$82 billion (40%). In separating the equity, commercial property and securitised debt components, the size of the Australian investment market for these asset classes can be compared to the global equivalent. The total value of the...

ABSTRACT High-density living is now widely accepted in the built environment. At the apartment entry price-point, space and place appear to be the key considerations, with limited attention to a building’s social, physical and environmental features. To examine this, the researchers interviewed leading Melbourne property developers and consultants to identify the challenges of incorporating innovation relative to governance, design, and construction and building operations into the competitive high-density property development market. Responses demonstrate that post-occupancy analysis can be a tool to better inform property stakeholders. When presented to prospective purchasers, this information could shift the key consideration from an entry price point to the features of a well-designed apartment and so redirect the current ‘minimalist’ approach adopted by some new property development entrants to improving occupier living experience and ongoing maintenance costs.

Commercial property is an important investment asset class that can cover the four quadrants of the Australian investment market - debt/equity and private/public markets. On available data, the extent and composition of property within these sectors can be measured and compared to the wider Australian investment market. As at December 2004, the estimated size of the overall Australian investment market is AU$5.8 trillion of which Australian commercial property component represents AU$206 billion (4%). Of this amount the private commercial property sector comprises just over 55% and is distributed between debt AU$59 billion (28%) and equity AU$57 billion (27%) market. The publicly traded market (Listed Property Trusts) represents the largest component at AU$82 billion (40%). In separating the equity, commercial property and securitised debt components, the size of the Australian investment market for these asset classes can be compared to the global equivalent. The total value of the...

The requirement to transition to a more sustainable housing future is well recognised from both the context of reducing environmental impacts and providing more affordable and equitable housing provision. There is increasing research around the technical performance of buildings which improve environmental performance and research which explores various affordable housing outcomes. However there has been limited exploration to date in the Australian context of developments which attempt to bring both elements together. This talk presents a case study of the Nicholson development in Coburg, Melbourne. The Nicholson is a 199 apartment development which was completed in 2011. At the time of its design and construction the development was innovative across four key areas: sustainability (built to a six star standard), the use of modular construction, being mixed-use and mixed-tenure and the governance of the development. This presentation discusses the results of a post-occupancy evalua...

Australian Commercial Property Investment Market: Styles, Performance and Funding Abstract Australian commercial property is a physical asset class that forms an important part of the capital market universe. On available data, the extent and composition of investment grade commercial property and associated property investment products can be measured and compared to the wider Australian investment market. As at December 2012, the estimated Australian institutional grade commercial property stock was AU$681 billion. The size of the core property investment market (office, retail and industrial) is AU$280 billion of which approximately AU$195 billion (70%) is owned by Australian Institutions. Due to illiquidity and high value thresholds, a range of securitised property investment products exist which offer investors exposure to local and overseas commercial property. The largest is public equity with Real Estate Investment Trusts capitalised at AU$89 billion representing close to 4%...

The Sharpe performance is a commonly recognised measure for comparing the risk adjusted returns of competing investment classes. On the surface, Australian property investment markets, display good Sharpe performances with relatively solid returns and low risk profiles. However, the Sharpe performance formula neglects two important features typically displayed by appraisal based property returns: non-normality and autocorrelation. These both can lead to an underestimation of the true risk of direct property and so an overestimation of the associated Sharpe performance. On applying a number of adjustments to the traditional Sharpe ratio, this research examines the joint effects that autocorrelation and non-normality have on the risk-adjusted performance of direct property in comparison with shares and bonds. The results indicate that overall direct property still maintains its attractiveness and ranking even after the effects of non-normality and autocorrelation are taken into account.

Commercial property is an important investment asset class that can cover the four quadrants of the Australian investment market - debt/equity and private/public markets. On available data, the extent and composition of property within these sectors can be measured and compared to the wider Australian investment market. As at December 2004, the estimated size of the overall Australian investment market is AU$5.8 trillion of which Australian commercial property component represents AU$206 billion (4%). Of this amount the private commercial property sector comprises just over 55% and is distributed between debt AU$59 billion (28%) and equity AU$57 billion (27%) market. The publicly traded market (Listed Property Trusts) represents the largest component at AU$82 billion (40%). In separating the equity, commercial property and securitised debt components, the size of the Australian investment market for these asset classes can be compared to the global equivalent. The total value of the...

ABSTRACT Purpose ‐ In Australia, the A$2.2 trillion managed funds industry including the large pension funds (known locally as superannuation funds) are the dominant institutional property investors. While statistical information on the level of Australian managed fund investments in property assets is widely available, comprehensive practical evidence on property asset allocation decision-making process is underdeveloped. The purpose of this research is to identify Australian fund manager's property asset allocation strategies and decision-making frameworks at strategic level. Design/methodology/approach ‐ The research was undertaken in May-August 2011 using an in-depth semi-structured questionnaire administered by mail. The survey was targeted at 130 leading managed funds and asset consultants within Australia. Findings ‐ The evaluation of the 79 survey respondents indicated that Australian fund manager's property allocation decision-making process is an interactive, sequential and continuous process involving multiple decision-makers (internal and external) complete with feedback loops. It involves a combination of quantitative analysis (mainly mean-variance analysis) and qualitative overlay (mainly judgement, or "gut-feeling", and experience). In addition, the research provided evidence that the property allocation decision-making process varies depending on the size and type of managed fund. Practical implications ‐ This research makes important contributions to both practical and academic fields. Information on strategic property allocation models and variables is not widely available, and there is little guiding theory related to the subject. Therefore, the conceptual frameworks developed from the research will help enhance academic theory and understanding in the area of property allocation decision making. Furthermore, the research provides small fund managers and industry practitioners with a platform from which to improve their own property allocation processes. Originality/value ‐ In contrast to previous property decision-making research in Australia which has mainly focused on strategies at the property fund investment level, this research investigates the institutional property allocation decision-making process from a strategic position involving all major groups in the Australian managed funds industry.

ABSTRACT Purpose – This paper aims to gain exposure to Australian real estate investment trusts (A-REITs). Many institutional investors make use of securitised property funds as they employ experienced property professionals with specialist knowledge of underlying property fundamentals, direct property markets and the 30-plus A-REITs. As securitised property funds operate in a competitive environment, investment performance benchmarks are important. Design/methodology/approach – To add to the familiar risk and return benchmarks, the risk adjusted performance (RAP) measure first outlined by Modigliani and Modigliani provides an additional and valuable return measure to a definite level of risk. This research selected 16 wholesale securitised property funds each with seven years of continuous quarterly total return data. Findings – Overall a large proportion of the selected funds (14 out of 16), on average, outperformed the market benchmark return (14.53 per cent) with the worst fund marginally under-performing the index by 0.54 per cent. In contrast, the annualised RAP measure highlighted the differences in the securitised property fund returns for a given level of risk, with a wide 12.90-16.66 per cent range. To achieve this uniform level of risk, five securities property funds had to replace up to 21 per cent of their property portfolio with a risk-free asset (90 day bank bills). The RAP measure also decomposes the excess returns above the benchmark. In this instance, the securitised property funds outperformance was from a mixture of active portfolio selection and simply taking on additional risk exposure. Originality/value – The research demonstrated the benefits of analysing securitised property funds beyond the standard return and risk measures. The RAP approach provides a measure of return for a definite level of risk with the benchmark excess attributed to portfolio selection and additional risk. This performance information can provide valuable additional information for an astute investor.

ABSTRACT Purpose ‐ To achieve long-term performance, superannuation balanced funds typically invest in a range of defined asset classes based on a strategic asset allocation approach. In an Australian context, the purpose of this paper is to examine the performance of the balanced investment option against eight different investment strategies and how the property allocation changes with different asset allocation models. Design/methodology/approach ‐ The analysis is based on ex post data covering 17 years (1995 to 2011). The selected passive and active allocation models are set within the modern portfolio theory framework utilising Australian ten year bonds as the risk free rate. The Sharpe ratio is used as the key risk-adjusted return performance measure. Findings ‐ Property provided the second highest risk adjusted return profile behind the alternative asset class. The different asset allocation models perform as well as the conventional strategic approach and in many instances property allocation is found to be under-allocated on a return optimisation basis. Depending on the asset allocation model, property when included within a multi-asset portfolio improves the portfolio risk-adjusted return profile by 2 per cent to 28 per cent. Practical implications ‐ For an Australian superannuation balanced fund, the empirical results show that there is scope to increase the property allocation level from current 10 per cent to 23 per cent. This knowledge will be beneficial for funds currently re-profiling investment portfolios to achieve stable risk-adjusted returns. Originality/value ‐ The research contributes to both practical and academic fields, as it offers a methodological approach on how allocation to property assets can be improved using a series of passive and active asset allocation strategies.

ABSTRACT New business opportunities and challenges are changing the structure of office, industrial and retail organisations and altering the pattern and demand for space. These agents of change on organisations’ decisions for new space formed the basis for a questionnaire survey of 167 new space occupiers. An index of degree of importance constructed from the results can provide a new platform for corporate real estate planning and a strategic approach to commercial property market decisions.