Neil Dunse

A hedonic price model of office rents

The primary objective of this study is to apply hedonic regression techniques to an office market to identify and quantify the significant contribution of the different attributes to office rents. This technique is widely used in the analysis of housing markets but an extensive literature review reveals little application in commercial property markets. The study analyses a sample of 477 asking rents, together with a series of locational and physical attributes, for the City of Glasgow. The results explain approximately 60 per cent of variation in rents across the city, emphasizing the importance of age and location as principal determinants of rents.

Housing Density and the Effect of Proximity to Public Open Space in Aberdeen, Scotland

We consider whether public recreational open space is a substitute for private open space by testing whether price effects from proximity to an urban park are increasing in housing density. Aberdeen, Scotland features three owner-occupied residential property types: detached housing, nondetached housing and flats. We examine property sales within 800 m of five city parks. We find flat prices increase with additional proximity to parks, but there are generally no price effects from park proximity for lower density housing types. The results suggest that open space policy must consider the scale and density of surrounding urban development.

Classifying office submarkets

In this paper, it is argued that neo‐classical location theory is of limited value in conceptualising the structure of urban office markets. Rather there are sound theoretical and technical arguments for segmenting office markets into distinct submarkets. It is further argued that submarkets, rather than being based on prior knowledge of agents or researchers, should be derived empirically. As an illustration the authors use principal components analysis and cluster analysis to construct office submarkets. The results reported are based on the analysis of a unique dataset of asking rents, physical and locational characteristics of properties on the market in the cities of Glasgow and Edinburgh in the 1990s. From the empirical evidence, it is clear that different factors are important in influencing the structure of the office market in Scotland’s major urban centres.

Testing for the existence of office sub-markets: A comparison of evidence from two cities

Most conceptual and applied economic models of the structure of urban office markets have been developed from traditional location theory. In their basic form, these models tend to posit a trade-off between accessibility and space. In the light of changing business practices and decentralisation, however, some authors have noted that the influence of agglomeration economies on the locational dynamics of commercial property markets may be declining. In this paper, we seek to undertake an indirect test of the power of intraurban office location theory. The paper is developed in two stages. In the first part, we examine the theoretical case for the existence of sub-markets in urban office markets and outline the implications of sub-market existence for traditional office location theory. In the second part of the paper, using data from Edinburgh and Glasgow, we undertake empirical tests for sub-market existence. A comparison of the results from the two city markets provides limited evidence of the existence of spatial sub-markets and suggests that markets might take different spatial forms depending on the urban context. The paper concludes by highlighting the need to account for the complex structure of urban property markets in developing models for property appraisal, taxation and land use planning purposes.

Trade-related valuations and the treatment of goodwill

Guidance Note 1 of the Red Book states that the valuation of an operational entity includes four components: the land and buildings; the trade fixtures and fittings; the trading potential, excluding personal goodwill; and the benefit of any transferable licenses and consents. Accounting changes in recent years have increasingly recognised the importance of intangible assets such as intellectual capital and goodwill. Similarly, recent tax changes demonstrate the governments acceptance of the importance of such items in achieving and maintaining business competitiveness. This paper has two key objectives: first, to analyse the application of the Red Book to trade‐related valuations, paying particular attention to the treatment of goodwill and second, to critically evaluate the accounting treatment of goodwill and in particular the application of Financial Reporting Standard 10. In order to understand the workings of the market, the corporate hotel sector was used as a case study. The key findings of the research are that valuers expressed considerable unease with the apportioning of market value between tangible assets and goodwill, there was no consensus on how (or if) goodwill could be measured reliably. Second, that the valuation methods adopted are, to a degree, naive. While explicit changes are made to the cash‐flow projections, there is insufficient appreciation of the changing risk profile that might lead to an adjustment to the earnings multiplier. The accounting difficulties and inconsistencies concerning goodwill arise largely because of inadequate valuation methods. Recent tax changes also point to the need for a robust and defendable valuation methodology. Application of one such theoretically sound approach to valuing goodwill (the bridge model) is illustrated in this paper. While the research focused on the corporate hotel sector, the findings have wider implications for other sectors of the market where operational entities are valued with regard to their trading potential.

Modelling Urban Commercial Property Yields: Exogenous and Endogenous Influences

The starting point for this paper is the argument that increased weight of money into commercial property in this decade has led to a convergence of UK provincial city office yields. The paper begins by reviewing the concept of a property yield cycle and the notion of a city risk premium, and then considers exogenous and endogenous influences on the determination of urban office yields. This provides the framework for the empirical analysis. The study examines the trends in office yields in the major provincial office centres of the UK over a period of more than 20 years. It reviews the changing city risk premiums relative to the City of London, including their spread, over this period and relates this to the weight of money invested in different provincial cities. This descriptive analysis provides the context for the development of a formal model of local office yields that is tested with a panel regression. The findings suggest that there are some local or fixed effects on yields in different cities and that exogenous investment funds are a significant influence in the short term but not the long term.

Office space requirements: comparing occupiers preferences with agents' perceptions

This paper reports the results from the first stage of a research project that examines changes in urban office occupiers’ space requirements and their impact on the structure of urban office markets. The specific objectives of the project are to compare occupiers’ trade‐offs and preferences between submarkets in the Edinburgh market and to look at the way in which agents influence the process by which occupiers are matched to space in particular submarkets. The results discussed are based on two surveys: first we analyse a detailed survey of office occupiers in two office submarkets in Edinburgh; and second, office agents are surveyed. This allows us to compare their perception of occupiers’ space requirements with those expressed by respondent occupiers. The results suggest that agents’ knowledge of occupier preferences vary across submarkets and that, in particular, they are less well informed about occupiers’ preferences in non‐traditional submarkets.

Planning policy, housing density and consumer preferences

Due to a combination of government planning policies and market pressures in England in the period 2000–2008, there was an increase in the construction of flats and high-density developments and a decline in the construction of houses. In this paper, an analysis of the effects of these policy constraints is undertaken. Using hedonic pricing models, we test for a non-linear relationship between house prices and residential density in England. Consumers prefer houses over flats and detached properties over semi-detached and terraced (i.e. lower density suburban areas). However, both low-density, detached-dominant areas and high-density, flat-dominant areas attracted a premium over medium density areas and the relative size of these price differences vary between different housing market areas. In cities outside London, we consistently see a convex relationship between price and density, whereas a concave relationship between price and density is consistently observed in London. This suggests a different form of relationship between density and house prices in large urban conurbation areas, compared to more typical provincial cities. The conclusions we draw are that in the correct context, high density may be viewed positively but a single planning policy is not appropriate and it should be tailored to suit local market needs.

The spatial pattern of industrial rents and the role of distance

Purpose – The objective of this paper is to re‐appraise intra‐urban rent models in the context of a multi‐nodal landscape. Primarily, the study focuses on the early work of Alonso and, more recently, Di Pasquale and Wheaton. Although the latter use a more sophisticated approach, both models lead to similar outputs, notably a declining rent gradient from the central business district (CBD). However, throughout the twentieth century there has been a considerable process of urban industrial change. Di Pasquale and Wheaton recognise this and argue that this has led to an almost flat industrial rent gradient.Design/methodology/approach – To assess the current impact on industrial rents a hedonic rent regression model is applied which enables us to standardise for property characteristics.Findings – The results support the hypothesis that the rent gradient from the CBD for a large city is still downward‐sloping, albeit very shallow. More interesting is the significance of proximity to motorway junctions. The an...

The property market impact of British enterprise zones

Enterprise zones (EZs) were originally set up in the United Kingdom in 1980 as experiments to stimulate free enterprise, and located in areas that had suffered significant employment loss. Unlike their namesakes elsewhere in the world British EZs are essentially property led local economic initiatives providing incentives over their ten-year life in the form of free rates to occupiers of commercial and industrial properties and 100% capital tax allowances which can be set against corporation or income tax. In all 36 EZs have been designated to date in the UK between 1982 and 1996. This paper analyses the detailed impact on local property markets of the three EZs designated in the Clydeside conurbation. It considers their role as incubators of new firms and demonstrations of enterprise, and the potential of spatial competition between zones. The evidence from Clydebank is that zone status expanded its stock of modern industrial space but once its EZ status was terminated it did not prove to be a catalyst for economic growth. The local EZs potential role as an incubator of new firm formation has not produced long term fruit. Similarly the demonstration effect of the EZ has not led to a sustainable local industrial property market where new development is viable. The Inverclyde zone was smaller and much of it remains undeveloped. The failure of the Inverclyde zone to complete its task can be directly attributed to the spatial competition with the rival EZ in Lanarkshire. The importance of local spatial competition between EZs is demonstrated clearly in this study and is exacerbated by the emphasis on attracting inward investment by the Lanarkshire EZ. Overall the evidence of the property market impact of EZs is that they should be judged on a long term basis and that a short term perspective, even after ten years, exaggerates their significance. The results cast serious doubt on the theoretical underpinning of property led initiatives designed to address market failure.