Department of Real Estate and
Construction Management
Division of Building and Real
Estate Economics
Royal Institute of Technology
Master’s Thesis nr: 315
The Cyclical Behavior of Office Market
A comparison between Stockholm and Zurich region
Author:
Ying WU
Supervisor:
Professor Hans Lind
Stockholm, December, 2005
I
Master of Science Thesis
Title
The Cycle Behavior of Office Market
-- A comparison between Stockholm and Zurich region
Author
Ying WU
Department
Dept. of real estate and construction management,
Division of Building and Real Estate Economics
Royal Institute of Technology
Master Thesis Number
315
Supervisor
Professor Hans Lind
Key words
Office Sector, Market Performance,
Integrated Market Player
Economic, Financial and Physical trait
Demand and Supply side
Abstract:
This paper is concentrated on the delineation research on the office market
performance and relevant cause-effect factors through the comparative analyses
between Stockholm and Zurich city region. The investigation work is engaged to
explore several fundamental drivers from the viewpoints of economic, financial and
physical trait of construction field, which are also based on the demand-supply
theory. The primarily purpose of this paper is to provide a general insight of the
operation activity of property industry, especially for office sector.
The most interesting finding is that there exists a powerful role of integrated leading
market player which influenced even controlled the entire market operation in some
degree. This kind of group normally has the multi-divisions to diversify their business
segments to ensure the success of their business strategies. Meantime, their
individual behavior has influenced the other small market participants as well as
influenced the entire market performance in the property industry.
The real market is a result of a combination of the derived demand and heuristic
supply, on the one hand, several key market indicators will have a strong role on the
influence of the project decision making. On the other hand, the significance of
behavioral approach of the human being is very important for influence the
investment decision making. As a result, it is worth to discuss as the final contribution
for this paper.
II
Acknowledgements
This thesis is a part of a Master of Science degree at the Department of Real Estate
and Construction Management, Division of Building and Real Estate Economics,
Royal Institute of Technology in Stockholm, Sweden. This paper would not have
been possible without the assistance and support of all of you.
Firstly, I would appreciate my supervisor – Professor Hans Lind for his assistance,
useful comments and guidance, which help me succeed to complete my thesis work.
On the other hand, I would like to thank associate professor Åke Gunnelin for his
assistance and recommendation in the inception stage of idea.
Moreover, I would like to thank Mr. Claes Larsson, Project President of Skanska, for
sharing his professional experience and knowledge. I would also appreciate
Mr.Diefer Kräuchi, Portfolio Manager, and Mr. Matthias Meier, Leader enterprise
communication in Allreal Group, for their hospitality and for providing their meaningful
opinions focused on the local Zurich office market. Due to their participation, this
paper could become more interesting and valuable. I am appreciating all of them
putting their valuable time at my disposal.
Most of important, I would like to dedicate this thesis to my family for their love and
encouragement. Finally, a big thank you to my fiancé, Qinfen Gu, for inspiring me
with encourage for the future life.
Stockholm, December, 2005
Ying WU
Table of Contents
Chapter 1 Introduction …………………………………………………………………..1
Core problems
Background/ Aim
Theory/ Method
Material/ Data
Empirical Results/Disposition
Limitations
Chapter 2 Literature reviews …………………………………................................... 4
A simple model of the property market
Determinant forces on office rental movements
Demand and supply cycle
Conclusions
Chapter 3 Overview of the current Stockholm/ Zurich markets ………………....9
Overview of market situations
Comparison
Implications & Conclusions
Chapter 4 Some fundamental drivers for office demand …………………...……14
Comparison
Conclusions
Chapter 5 Exploration on the office construction cycle ………….......................19
Three stages on the building process
“Time to build” – Inherent factor
Hog cycle -- Explanation for overbuilding
Current problems
Chapter 6 The findings from the perspective of leading market players………22
Stockholm: Skanska
Zurich: Allreal group
The final findings
Chapter 7 The final discussion……………………………………………………...…28
The final discussion
References ………………………………………………………………………..………29
Appendix A …………………………………………………………………………….…32
Some details on Stockholm /Zurich market performance
Appendix B …………………………………………………………………………….…35
Interview questions for Skanska
Appendix C ………………………………………………………………………….…....46
Interview questions for Allreal Group
The Cyclical Behavior of Office Market
1
Chapter 1 Introduction
Core Problems
This thesis has intended to do delineative exploration research on the cyclical
behavior of office market and all the relevant cause-effect factors. The case study is
engaged into the comparative analysis between Stockholm and Zurich city. There
could be divided into the three core questions which consist of respective subquestions step by step to explore the essence of market behavior, especially for office
sector.
¾ Office market performance
The practical issues have been embarked on the description of current office market
operation: How to understand the entire office market performance for Stockholm and
Zurich region? What is the difference between them? Consequently, what are the
implications of these real market phenomena? From the perspective of detail-oriented,
the work is focused on examine current character of office market and the reader can
know about the general condition on selected regions of Stockholm and Zurich city.
¾ Some fundamental macro-economic drivers
The second part of the problem is concentrated on comparison of some underlying
macro-economic factors: How does the property cycle operate in the business cycle?
Is the office market cycle simply a reflection of the broader macro-economy? Are
there any important market indicators or macro-economic factors, driving the
operation of the market?
In comparison with these two regions, the reader can know about the different
situations on economy activity. Furthermore, I can compare these differences to
explore somewhat drivers for influence on market behavior.
¾ Office construction market/ leading market player
The third part is focused on the construction field: Why is there such a long lag
between market conditions and changes in construction project decision? How does
project development work? What is the feature of construction submarket? How to
understand the overbuilding phenomenon in construction market? What are the
reactions in response to the current situation from the leading market players1?
From the perspective of inherent trait of construction, time to build is of importance
for the construction industry, which in turn influenced property sector. I can explore
some underlying factors driving the office construction market behavior, which in
turn has played an important role in office market performance.
Background/Aim
It is worth to study the cyclical office behavior especially for Stockholm in
comparison with Zurich region. They are both the significant western office markets
1. In my opinion, there could be a dominating party for directly influence even potential control the current office market. In
contrast of the governmental intervene, the effective market power has more influenced on including all relevant individual
players. Moreover, among these players, there would be a leading party.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
2
as well as, recently, they have experienced the dramatically changes for their
respectively markets for office industry. The interesting phenomenon of overbuilding2
is very popular with discussion for the market players.
The problem of overbuilding is regarded as a seriously inevitable phenomenon in the
construction field, which confused the market players, in turn influenced the change
of market performance, especially in the development sectors. The research work is
worth to do right now, because it seems to be the time to crucial for the future trend of
next three to five years. I would like to utilize the existing theories and prevailing
opinions to examine the current phenomena and underlying problems behind them.
The overall purpose is to provide in-depth insights on office sector which is the more
cyclical along with the dynamic economy activity. The process of study has been
assigned by four steps in details from the general understanding of current market
situation to the focal point for the reactions from the leading market players, including
the first step is the overview of market performance, the second is comparison of
some macroeconomic drivers whiles the next step is the exploration of construction
market in the light of the demand-supply framework, the final work is concentrated
on the interviews of some leading market players to examine their feedbacks in
response to current market situation and their successful business strategies.
Theory /Method
As for the methodology, I have utilized a simple structure of organization (as Figure
1.1) to illustrate the details on the framework of this paper. First of all, there could be
the core problems and some relevant theoretical reviews; the next is concentrated on
the description of the respective market conditions. As the form of delineation articles,
survey and interview are the primarily investigation approaches for the real estate
market. The purpose of the entire research work is to an increase in the understanding
of problems.
Figure1.1 The structure of organization of this paper
Problem and theory
Description
Stockholm marekt
Description
Zurich market
An increase in
the understanding
for the problems
and theories
Survey, interviews, investigation
The highlight is the interview work, because the first consideration is the selection
criteria on target companies and groups. That kind of group with the multi- divisions
on their business organizations is my idea concern, as well as they have focused on
the local market. The reason that I choose this kind is that I realized that the kind of
multi-divisions is a successful business strategy to diversify their business operations.
2. Colliers report, 2005
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The Cyclical Behavior of Office Market
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Material/ Data
There could be two primarily categories of useful material or data applying in this
paper: Primary Data and Secondary Data. On the one hand, as for the primary data,
the approach is focused on the interview works connected with some companies; on
the other hand, all the previous articles and relevant market reports from the different
background of groups belong to the concept of secondary data, including their
brochures, e-publications, market reports and so on.
Empirical Results/ Disposition
As a result of the preliminary investigation work, there could be three pats of
empirical observations. The first observation is concentrated on the characteristic of
current office market: Positive for Stockholm, whereas, Uncertain for Zurich market,
which could be addressed in Chapter3. In addition, the next comparison result is that
they have some similar positive macro-economic drivers. This is described in
Chapter4. The third point is addressed on the current situations of office construction
submarket, which is focused on Chapter5. The structure of later two chapters of Ch4
and Ch5 is based on the demand –supply theory.
The most interesting work is engaged in chapter 6, because these findings are
completely from the interview work and we can know something interesting from the
viewpoints of these market players. Consequently, we can open the mind to
understand the behavior of some leading “integrated”3 property companies.
On the other hand, as for the extension part of the interview work, there could be the
final discussion on the significance of human being in the market operation based on
the behavioral approach, which is discussed in Chapter 7.
It is worth to go back to consider the review part of previous relevant articles, which
is addressed in Chapter2. The research findings have primarily two parts: one is the
simple theoretical method to describe how to operate the property market and the
other is that there could be three parts of economy, finance and construction itself
based on the demand-supply theory, which become the clue and idea to develop the
following exploration work. This is my first consideration and concern sector after I
had an original idea of thesis. This provided me with a useful knowledge on property
research.
Limitations
My principle is to show the readers an objective-value paper, despite the true had a lot
of personal opinions and views, especially during the phase of the selection of the
leading market players. On the other hand, as for the investigation of current market
situation and all the relevant conditions within the demand-supply theory, the
fundament of survey and observation is based on the market-oriented and the detailoriented, consequently, market prevailing data, information and available publication
are my ideal choice to ensure the objectivity of the paper.
3. I would like to define these leading market players as an integrated unit with the full responsible for the all risk during the
entire process of project development. In general, they always combine different business functions into one organic, flexible unit.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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Chapter 2 Literature reviews
2.1 A simple model of the property market
Keogh (1994) provided a simple model (as below, Figure 2.1) as theoretical
framework to examine the British property operation for quantitative analysis. There
could be three submarkets of the use, investment and development sectors. Each
component represented a market arena in which trade occurred and prices were
determined by the interaction of demand and supply.
Figure2.1 A simple model for property market cycle ( Keogh. 1994)
There were some indicators to be examined in each submarket. As far as the user sub
market was concerned, it was predictable that the interaction between demand and
supply in the user market was a cyclical pattern of rents. Moreover, the rental
evidence appeared to bear a close relationship to the business cycle. As far as the
investment submarket was concerned, capital value or yield as indicator was
established in the investment submarket. Obviously, the level of yield depended on
both the level of rents and the prospects for rental growth. As far as the development
submarket was concerned, floor space was viewed as the important part of supply
indicators which were assessment of emerging market trends and the availability of
development finance.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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McGough (1997) modeled the rental, capital value and new office building output
equation for the three submarkets: use, investment and development respectively,
which were based on the Keogh’s (1994) theoretical framework. The empirical
findings were that some macro-economics forces had played an important part in the
use and investment sectors, which directly influenced the development activities:
GDP and office employment were of importance to drive the user market; short-term
interest rates appeared significant reflection in response to the changes in office
capital value on the investment submarket.
2.2 Determinant forces on office rental movements
According to previous articles, there could be three parts of influential drivers for
office markets: economic, financial and physical trait of construction, which there
were some typical demand variables for rent determination, which included
GDP/unemployment rate, service sectors output, employment and interest rate as
demand-side variables. Floor space was usually as a supply-side variable, in terms of
previous studies. Macroeconomic and Financial factors could be examined as the
demand side, while some traits of physical construction could be considered as supply
side to together explore the entire office market performance.
Macro-economics factors
Demand for office activity was derived from the two demands: user and investor
demand in terms of their market behaviors. These demands were desired demand
which primarily depended on the investor expectation on the future economy
condition at the local market.
• Real GDP/ Unemployment rate
Gross domestic product may be the most appropriate aggregate output measure. GDP
normally represented general economic conditions, as the unemployment rate, which
was identified to as the economic-base. Barras mentioned that real GDP was the most
appropriate and widely was used as demand-side drivers at an aggregate level, which
gave a broad indicator of the office sector, including both the manufacturing and
service sectors of the economy. This assumption gained a lot of support from previous
empirical studies. (Barras.1982, McCue et al. 1987, McGough et al. 1997,
Keogh.1994)
It was also proved that there was a very high correlation of commercial output with
GDP and construction cost, while construction costs and capital values themselves
were highly correlated with GDP. (Grilli et al. 1997)
Financial factors
• Interest rate/ Money supply
Money supply has directly affected on output, which output directly influenced
construction activities. Interest rate can affect real estate through the capital market.
The nominal interest rate has by far the most powerful effect.
High interest rate has discouraged development decisions, and then rental values have
increased. On the opposite side, the possible reason for the declines in nominal
interest rate was that overbuilding phenomenon in the office construction market.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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Short-term interest rate appeared as the explanatory variable for the cost of short-term
development finance, taken into account by the developers. Moreover, 10-year bond
yield was emphasized on the property investment in comparison with the others assets:
equity or gilt by investors, especially the opportunistic investors.
Supply side (spatial factor)
As for the supply side, the stock-flow of construction volume can be viewed as the
reflection in response to the current or expectation for the future trend on the office
sector. The change of the building construction played an important role in the office
building cycle. The volume of new building emerging in the every year could become
the indicator influencing market players’ expectations for future trend.
• Floor space for office buildings
It was difficult to obtain the data on the office construction which was a big problem.
In some studies, they focused on office floor space, such as changes in total stock of
office space, the volume of new office construction, the level of new orders for office
spaces, the completion of office space and changes in the volume of office building
output. The empirical results demonstrated that office floor space had some
significant effects on office rental market.
Table2.1 (as below) shows the several important influence coefficient factors for the
economic, financial and physical construction traits, which have been studied in
existing literature. These variables including the demand and supply side are in
attempt to examine macro factors that affected the office cyclical performance.
2.3 Demand and Supply Cycle
The production lag between an increase in the demand for new capital goods and the
competition of their construction and delivery played an important role in the office
activity. Because it was as supply side in response to the change of the demand side
and created a tendency to alternative periods of over- and under-supply in the market.
This lag in period was caused by inherent characteristic in the process of construction.
In terms of previous study, this construction lags which occur in building was large
scale projects, the supply cycle as much as 9 to 10 years can be created. (Barras.1983)
The demand cycle could be induced in part by the business cycle, which affected all
types of economy activity. If business cycle fluctuations were transmitted to building
activity through the demand for new floor-space, it was possible for such building
activity to exhibit both a short demand cycle of 4 to 5 years, and a major supply cycle
of 9 to 10 years. (Barras.1987)
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The Cyclical Behavior of Office Market
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Table2.1 Explanation variables which has been used in previous literatures
Explanation Variable
demand side
GDP
employment rate or
unemployment rate
employment rate growth
interest rates(long and
short term)
inflation
economic uncertainty
rental uncertainty
market size
capitalization rate
number
of articles
5
1
1
1
3
1
McGough. et.al.(1997,1998),Grilli. et.al(1997)
Barras.(1982),Hekman(1985),McGough.
et.al.(1997,1998)
Wheaton.(1987),
McCue.et.al(1987),Wheaton.(1987),McGough.
et.al.(1997,1998),Hendershott(1996)
McCue.et.al(1987)
McGough. et.al.(1999)
McGough. et.al.(1999)
Hekman(1985),McCue.et.al(1987),Jone.(1993)
MagGregor.et.al(2005)
supply side
office-floor
space(total/new/changes)
vacancy
absoption
1
2
1
Wheaton.(1987)
Wheaton.(1987),Hendershott(1996)
Wheaton.(1987)
finacial factors
past rental value
share price
bond and Tbill yields
construction cost
2
2
3
2
McGough. et.al.(1997,1998)
McGough. et.al.(1997,1998)
McGough. et.al.(1997,1998),Grilli. et.al(1997)
Wheaton.(1987),Grilli. et.al(1997)
Barras.(1982),Wheaton.(1987), McGough.
et.al.(1997,1998),
McGough. et.al.(1997,1998),Grilli. et.al(1997)
Hendershott(1996)
cost of capital
yield/ capital value
tax reform
3
Articles
4
1
4
3
1
Table2.2 Explanation variables on which have been used in previous literatures
underlying factor
expectation for rent
increase
anticipated output
myopic behavior for
investors
leasing behavior
construction lag problem
2
1
Chinloy(1996),MagGregor.et.al(2005)
McCue.et.al(1987)
4
1
2
Hekman(1985),Wheaton.(1987,1999),Brunes(2005)
Grenadier(1995)
Barras.(1982),McCue.et.al(1987),
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The Cyclical Behavior of Office Market
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2.4 Conclusions
Table 2.2 shows some underlying factors that are driving the change of office market
performance influenced by the individual behavior including the expectation for rental
increase, anticipant output on new building, leasing behavior and time to built
problem in construction field.
Market Behavior VS Market Performance
Several explicit factors showed that the individual project decisions by market players,
such as the investors and developers, actually have played the underlying role in the
office market performance. Office building activity was a result of the behavior of
individual investors (Hekman.1985) and expectation for the rental growth was
underlying driver for the investors. (Chinloy.1996) Wheaton (1987) argued that long
run expectations had played an important role in market behavior.
In the traditional theory, investors are assumed all rationality. That is to say, the
investors will make full use of the all information that they obtain to analysis and
forecast the future trend for office market. However, this opinion encounters much
challenge in practice. Brunes (2005) discussed the possibility of irrationality from the
viewpoint of behavioral of investors on the current Stockholm office market
phenomenon: overbuilding. Overconfidence, herd behavior and myopic behavior can
be concerned as the significant behavioral facts on the investor attitude.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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Chapter 3 Overview of the current Stockholm/ Zurich office markets
3.1 Overview of market situations4
Stockholm City office market
According to the latest market report of Newsec, the hot and robust condition will be
continued in the greater Stockholm region, especially in the business center location.
In the last year, the transaction activities reached the high level during these five years,
as well as be attractive for both domestic and international investors.
Table 3.1 shows the some important market indicators to illustrate the current
condition for Stockholm office sector. In the rental submarket, the rental level
remains the moderate increasing trend, especially for the CBD-good business location,
in spite of the slight high vacancy level. In the investment submarket, with low
interest rate, market competition, the decline on the yield is to be considered for
investors. In terms of report of Newsec, 8% is opinion for opportunistic investors in
recent years. In the development submarket, the recent two years, the recent speed of
emerging of new construction is lower than of situation of the year of 2002 and 2003,
which there were 260,000 m2 completed in the 2002, and 190,000 m2 in the 2003.
Table 3.1 Key Market Indicators for Stockholm Office Market (Source: Jones Lang LaSalle )
office properties Q4
2004
office stock
Q4,2004(m2)
total Est. Completions
2004(m2)
total Est. Completions
2005(m2)
total Est. Completions
2006(m2)
Vacancy (m2)
Vacancy rate (%)
Prime rent
(sek/euro/m2)
Rent-Grade B
properties
(sek/euro/m2)
Prime yield (%)
Yield- Grade B
properties
CBD
Rest of Inner
city
Adjacent
Suburbs
Kista
Solna/Sundbyberg
Total
1,608,000
3,223,000
1,694,000
833,000
1,539,000
10,744,000
0
0
0
0
0
8,000
0
40,000
0
40,000
192,000
11.9
501,000
15.6
364,000
21.5
173,000
20.7
289,000
18.8
3,600/401
2,900/323
1,800/200
1,800/200
2,100/234
2,000-3,000/
223-334
1,300-2,200/
145-245
700-1,700/
78-189
900-1,400/
100-156
700-1,500/
78-167
5.75-6.0
6.25-6.5
7.0-7.25
6.75-7.0
6.75-7.0
6.5-7.0
7.0-7.5
7.5-8.25
7.75-8.25
7.75-8.25
1,895,000
17.6
Zurich city office market
According to the report of Colliers, the future trend of office market is full of huge
uncertainty. Different market participants are more prudent than before, accompanied
with the continuing increasing vacancy rate, at the top level during the latest fourteen
years. The other big question is the time waiting for the recovery of economy, but no
one can be confident for the next situation.
Table 3.2 shows the different conditions of submarket segments in Zurich City region.
The general situation is not good and positive, excluding the center of city.
4. See the Appendix A in details
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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In the rental submarket, The average rent for the city as a whole is currently around
CHF 310 /sq. m/annum In the CBD, the situation is slight better than others business
submarkets. In the investment submarket, as for the property yield, it remains the high
level of 6% for the several years. By the compared with others EU office market, the
level on yield rate is the higher, in spite of the decline trend of itself these years. In the
development submarket, the volume of new order will increase this year despite the
vacancy rate is at a high level of 9.0%.
Table 3.2 Key Market Indicators for Zurich Office Market (Source: CB Richard Ellis-PI Performance)
Zurich city
center
Zurich west
Zurich north
Zurich
Altstetten
total city of
Zurich
area
available
stock
share
prime/average rent
1Q 2005
M2
M2
%
1Q 2005
134,000
79,000
81,000
1,068,500
623,850
607,300
12.5
12.6
13.3
111,000
514,300
530,000
5,843,800
ready
2004
net construction
under
construction
1Q2005
projects
approved
770/530-550
260-280
250-260
5,000
10,000
8,000
22,400
15,000
61,200
12,300
36,000
35,000
21.6
220-230
10,400
50,000
1,500
9
310
46,600
96,200
84,800
3.2 Comparison
To better understand the respective market situation, selection of activity of CBD is to
illustrate the difference and problems between Stockholm and Zurich region. It is
obvious to find that the high vacancy rate reflected the huge problem that occurred in
the Zurich city.
The reason of selection of vacancy rate5 is because not only the vacancy level is an
important indicator to illustrate the market situation as a result of the mirror to the
rental demand; but also it is a significant indicator for examination of the new order in
the development submarket. Consequently, the vacancy level may reflect a
combination of rental demand and new order supply.
Most of important, the situation of vacancy rate at a local level 6 has directly provided
a profile to study the local construction submarket. It is worth to track back to think
about the condition of new construction for two markets.
For the Stockholm region, the vacancy rate is still at a higher level but it begins to
decline compared with the last year with the top historical record of 12%. Conversely,
for the condition for Zurich office sector, the condition of vacancy level is
dramatically upward, rising from 8.0% in 2003 to 9.0% in 2005. It seems that the
trend for future level of vacancy rate will continue to increase at a high level, even
exceeding the historical top record of 9.8% in 1991.
Figure 3.1 shows different level of vacancy rate for Stockholm and Zurich
respectively, and Figure 3.2 illustrates the difference between two regions during
these eight years. We can find that the recent situations are not good for Stockholm
and Zurich markets.
5. Wheaton (1987)
6. Hekman (1985) argued the market for office buildings was primarily a local market.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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Figure 3.1 Vacancy rate level during 1998 to 2006
Stockholm area (Source: Newsec)
Zurich region (Source: CB Richard Ells)
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
1998 1999 2000 2001 2002 2003 2004 2005 2006
Figure 3.2 Comparison the vacancy rate level these 8 years
14
12
10
8
stockholm
6
zurich
4
2
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Vacancy rate VS rental market
General speaking, the rental level is declined during the high level of vacancy rate, as
well as with the increasing level of vacancy rate, there could cause the high pressure
on the rental level of office market. The current these two markets have the common
problems of high level of vacancy rate.
Take the situation of CBD as a example to compare, as for the Stockholm market, the
bad situation began from the year of 2000, with the top level of Euro
700/sq.m/annural, followed with declining for four years, with slight increasing in this
year, reaching Euro 401/sq.m/annural. In contrast, on the same time, there is no
significant change in the rental level for Zurich market during these five years. The
current rental level is Euro 640/sq.m/annural, with the situation of the increasing trend
of new office space.
Table 3.3 shows the current information on these two rental markets, we can know in
general, the rental level of Zurich is higher than Stockholm region especially in the
prime location. However, there is a bad news for Zurich in comparison with
Stockholm market: the yield level is lower than Stockholm; moreover, the worse is
the vacancy rate is higher as much than the Stockholm. In my opinion, there is a
negative for the future trend, because the news of the lower yield of Zurich by
compared Stockholm means the investors have not enough confident for the future
rental level as well as, the high vacancy rate of 9% is serious bad indicator for the
relative small market size for Zurich in comparison with Stockholm region.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
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Table 3.3 Key Market Indicators for CBD (Source from many market reports)
Stockholm
Zurich
prime rent (euro/m2/annural)
401
640
Vacancy rate (%)
11.9
9.0
5.75-6.0
4.2
property yield
Vacancy rate VS new order
The emergence of new order is of importance for the local office performance
especially in the situation of high level of vacancy rate. However, for the Zurich
office market, the increasing trend is happening in the construction market, the
volume of this year is twice of the last year which has aggravated the more serious
overbuilding phenomenon. According to the prevailing market opinions, weak
demand and over supply aggravated the current serious stagnation situation for Zurich
office sector. Overbuilding is regarded as the significant problem to deal with.
Figure 3.3 shows the difference volumes of new office space in two regions. It is
obvious to observe that there would be huge difference during the three year from
2004 to expected 2006. From 2002, the volumes of new office space in Stockholm
region have dramatically dropped, especially in this year reaching the bottom level; in
contrast, the increasing trend of new building will happen in the Zurich region this
year and will never stop the increasing trend in the next year in spite of the situation
of high vacancy level.
Figure 3.3 Comparison on office performance-- new office space (completed at the end of year)
300,000
250,000
200,000
stockholm
150,000
zurich
100,000
50,000
0
2002
2003
2004
2005
2006
As for the volumes of office new construction, the situation of Stockholm office
market has been dramatically declined from the 260,000 sq.m in 2002 to 100,000
sq.m in 2004, continuing dropping by less than 20,000 sq.m for 2005, reaching the
bottom of these five years. In contrast, the situation of the new construction for Zurich
office sector was continuing to increase in spite of the high vacancy level of 9% in the
2004, and the number of new construction was 46,600 sq.m. in the city of Zurich,
which could be planned to be built.
3.3 Implications & Conclusions
I have utilized the original figure which described the office cycle by DB real estate,
Global market research report combined with the feedbacks from the market public
information to illustrate the current situation for Stockholm and Zurich city.
Office market for Stockholm area has experienced the upward trend on the process of
office cycle, illustrated by Hollow dot, whereas, the opposite condition happened in
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
13
Zurich office sector, with in the decline process, described by the Solid dot as below.
(See Figure 3.4)
These two dots reflected the possibility respectively in my opinion, based on the
market public available information. Obviously, the office market for Zurich region
has suffered from the declining contraction process in the office cycle. (Solid dot)
Figure 3.4 office market cycle
(Source: original figure from DB Real Estate Research, Experience Business Strategy and Global
Insight)
Stockholm condition
Stages
1) Recovery
2) Growth
3) Post Growth
4) Contraction
Zurich condition
General Conditions
high but declining vacancy- stable to rising rents/values
low and declining vacancy- rising rents supportive of
construction-rising values
low but increasing vacancy- rising/ flattening rents/values
high or increasing vacancy-falling rents/values
The Hollow dot for Stockholm city is in the process of recovery after bottoming out
which is based on a thorough “top-down” and “bottom-up” process across the
European markets; conversely, the Solid dot for Zurich region is in the contraction
process, facing the possible of bottom-- serious problem. It is hard to say the real
thing will happen like that. But at lease, we can make a general impression on these
two markets’ situations.
The office market is robust for future Stockholm region in terms of limited new
supply construction, combination with the strong demand; the rental level is expected
to increase. Conversely, the trend on office market for Zurich region is uncertainty.
Because the weak demand accompany with the strong supply that create the some
degree of pressure on the Zurich office market operation.
As a result, the interesting question that I try to explain in the following chapter is to
discuss the possibilities why the continuing situation of the new increasing emergence
buildings for Zurich local office market in the situation of high vacancy level in
comparison with Stockholm condition.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
Chapter 4
14
Some fundamental drivers for office demand
4.1. Comparison
The in-depth understanding of macro-economy situations will benefit to the
exploration work on the demand side of office market cycle. Here I take some
features to discuss the possible reasons for the difference of situations from the
viewpoint of economic-base. The problem-solution has been concentrated on several
aspects concerning the fundamental exogenous factors as below:
¾ The general economic situation including GDP, employment rate, employment
growth rate and so on at the national /local level 7
¾ Special geographic feature including the market advantage, market capacity 8
¾ Monetary policy & Tax system VS investor expectation 9
¾ Tenants demand VS leasing contract & leasing market10
4.1.1 The general economic conditions
In comparison with the average level of EU area, the positions of Swedish economy
and Swiss economy are high above the average. Moreover, the regional economic
growth for Stockholm and Zurich are in positive positions compared to the EU level.
Table4.1 Key Economic Data
Economic key data for Euro area (Source: Statistics Sweden)
2003
2004
2005
2006
2007
GDP growth (%)
0.5
2.0
1.6
2.1
2.3
CPI Inflation rate (%)
2.1
2.1
1.9
1.8
1.8
Unemployment rate(%)
8.9
8.9
9.0
8.7
8.6
Economic key data by comparison with Stockholm and Zurich at national level/local level
2005
GDP growth (%)
CPI Inflation rate (%)
Unemployment rate (%)
Sweden /Stockholm
Swiss/ Zurich
EU
3.2/3.7
3.8/ 4.2
1.6
0.5
1.3
1.9
5.6/4.0
3.1/2.5
9.0
GDP 2004, 2005
GDP growth (%)
Sweden
Switzerland
2004
2005
3.5
3.2
4
3.8
There is slight decline in GDP-growth in the two countries this year, for Sweden, the
GDP growth is decline to the 3.2% in comparison with 3.5% for the last year; for
Switzerland, the degree of decline is higher than the level of Sweden, decreasing from
4.0% to 3.8%.
7. Colin Jones (1993)
8. Colin Jones (1993)
9. McCue.et.al. (1987), Michael Ball and Maurizio Grilli (1997)
10. Wheaton (1987)
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
15
Generally speaking, the regional economy growth for Zurich is above the level for the
Stockholm area, and both are at higher levels in the EU area. With the influenced by
the global slump economy condition, the aggregate demand and output for two
countries will be slightly decline in contrast with the last period in respectively.
4.1.2 Market competition
There are many similar advantages for office activity in the Stockholm area in
comparison with the Zurich region: high transparency, diversified economy and
stability monetary policy. On the one side, they have the international business
markets; banking, finance and insurance are both their special profiles of business
sectors. The engineering service is an important branch for their regional growth.
There is Kista in Stockholm—village of IT; whereas, there is Altstetten in Zurich—
IBM Tower.11
On the other side, they both have a first-class education institute as support for their
high tech development on the field of biotechnology and high tech in the region. Most
of important, Stockholm and Zurich are taken into account the better location for
headquarters for international, multinational companies; especially the position for
Zurich city is more active.
• Geography regional comparison
Sweden is the biggest Nordic country and its capital—Stockholm is the biggest city
among the Nordic cities whereas, Switzerland is the center of Europe and Zurich city
is its center of business and finance opening for the international, global business
sectors.
Both the labor market and the property market have benefited from the region’s
strong population growth. The internal migration for Stockholm and Zurich are very
important facts for their office-employment conditions, at this level, they both
experienced similar problems. The inflows of new inhabitants became the market
indicator for evaluation on the regional growth and office market monitor.
With 10.7 million square meters of office stock, Stockholm is Europe’s tenth-largest12
office property market; on the other hand, the office market for Zurich also played an
important role in EU office market and domestic market in spite of a bit small
capacity by comparison. However, it could be considered that the capacity for
Stockholm office behavior is larger than for Zurich region in terms of the market size.
4.1.3 Property investment market
• Interest rate
It is worth to take a step back and think about the ways that interest rate affected the
real estate markets. The most obvious effects of interest rate have been observed in
the physical property market, through their influence on the economy.
11. Jones Lang Lasalle Q12005
12. Invest in agency
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
16
The optimists look at rising interest rates as a symptom of an economy doing well;
office sales rising, unemployment falling and construction buoyant. There are great
trends for real estate! The reality is that if you want strong tenant demand, and then
expect interest rates to rise soon. On the other hand, pessimists regarded the rising
interest rates as precursor to an economic slowdown, or even recession.
For investors, the ten year bond yield is important for real estate investment. The bond
rate is generally considered as a “risk free” rate and forms a vital component of the
discount rate used in valuations. Consequently, it should be realized the level of “risk
free” for Swedish property market is higher than for Zurich sector, with 3.99% by
compared to 2.0%. (See Table 4.2)
On the other hand, as for the short term interest rate, the investors always considered
it as short term cost of project finance. We can find the interesting thing is that the
short term interest rate of Switzerland is very low at 0.75% in comparison with the
2.17% for Sweden. (See Table 4.2)
Table4.2 Comparison with interest rate
2005
Sweden
5/10Years Bond yield
3.33%(5Y)
3 m interest rate
2.17%
Switzerland
2% (10Y)
0.75%
EU
3.60%
2.16%
• Tax system
Tax system is important as the criterion for companies to choose the locations for
their business development, which can also be regarded as the indicator for market
competition for business. The headquarters of ABB that moved form Stockholm to
Zurich is a good and powerful example for this issue.
Table4.3 Comparison of relevant tax reform between Swedish and Switzerland
Sweden
Switzerland
VAT (%)
25
7.6
Corporate tax rate (%)
28
16-25
In 2003, in terms of new tax legislation that made it a highly attractive with a Swedish
holding company, a Swedish holding company can be established without any duty or
incorporation tax and no taxes were left on incoming and outgoing dividends. The
corporate tax rate level reached a low level in Europe. (See the Table 4.3)
Moreover, on the other hand, Swiss tax rates for companies and individuals are
among the lowest anywhere in Europe. Corporate taxes are approx. 16-25%, while
individuals are taxed at rates between 5 % and 20%. (See the Table 4.3)
• Investor expectation
With the rational expectation, investor will forecast the future trend in the light of
current market situation. They will collect the information from market, classify and
analyze these on the relative economic situation; consequently, they will make the
investment-decision about office premises or office portfolios.
We can realize that there exists a gap between the yield rate and bond rates, from the
2001, the gap has increased with slight decline in the yield demand and dropped in the
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
17
bond rate. The gap of 2% stood for the investor expectation return on office market
for Stockholm. From the 2004, the yield slight declined to 6%, which mean the rental
level is decreasing in the coming year for increase in activity on the market
competition.
The yield rate was declined to 5% in 2003, when it suddenly emerged on new
construction in Zurich office market, with the drop in the 10 year bond rates. In the
historical record, the highest level on gap between the yield and bond rate happened
in the 1998, reaching 2.8%. From the 2000, the trend on the yield and bond rate level
is declined, remaining the gap with 1.5-2.0%.
The yield gap widened from 2002 to 2003 was due to the decline in the interest rate
with stimulating the economic activity for Sweden. The yield gap widened in the 1998
led to the property boom in the Zurich office market. However, in recent years, the
situation of the drop in yield rate showed that investors had not enough confidence for
the rental market for Zurich city. The condition of market for Zurich is so tension that
it is silent for the future.
4.1.4 Potential user market
The categories of business in the local region are important for the consideration of
market players/participants for observation on market situation. Even this is basically
knowledge for connection with the real world. As for research work, it is also
important to observe.
We can know that there are some common features in the user sector for office
building in these two regions: firstly, the service industries have played a dominate
role in local market including IT industry and professional consultant. However, the
big difference between them is primarily due to the limited market size. The industry
of Zurich, especially in CBD is concentrated on high-tech, professional consultant
business with focus on finance, insurance, high technology.
• Leasing behavior
There is an interesting phenomenon that occurred in the period when there was a
sluggish situation in the recession office market. The transaction activities reached the
lower level in leasing market for current situation of Zurich region. Although it seems
maybe a good things for the users/tenants: the decline in the rental levels, enough
supply office building to choose, they are so more cautious that they stand by to
observe the future trend on office market. There could be interesting phenomenon that
the more surplus supply provided, the more cautions for decision of user, in my
opinion. This stagnation behavior for users and tenants have directly influenced the
developers and investors expectation for the trend in the future, which lead to high
level of uncertainty for the future rental movement.
• Lease term
From the viewpoint of tenants, if they want to move to new office building, they will
always think about it at the period of expiry of lease contract. So the length of
contract is important effect for the cyclical behavior in the office sector. The length
for Swedish office with 3-5 year is shorter than the Swiss level with 5 to 10 years,
which is more flexible to benefit to the transaction activities in the leasing market.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
18
On the other hand, the right to renew is much stricter in the Swedish market, in
comparison with the condition for Zurich, which is based on negotiation with the
landlord to renew.
Table 4.4 shows some features of difference in details between two markets. In fact,
the regulations for Swedish property has more effective role to drive the accelerating
of transaction activities in the leasing submarket in comparison with Zurich
documents.
Table4.4 Comparison with typical current lease term between Sweden and Swiss
length standard
rent reviews
rent deposit
right to renew
measurement
Sweden
Switzerland
3 to 5 years
5 to 10 years
annually, 75-100% of CPI
annually, linked to CPI
3-12 months, payment quarterly in
advance
No rights. Although if tenant is willing
to pay the market rent it will be difficult
to evict him
Usable office area.
3 to 6 months
no, may be negotiated for 5 to 10 years
on "net internal area basis"
4.2 Conclusions
In general, there exists a huge potential for upward trend for demand factor of office
sector in Stockholm region; in contrast, there is not strong demand for the entire
region of Zurich office market, excluding the good prime location, which is primarily
due to recession of economy activity, in turn, directly influenced the investors’
investment decisions. Moreover, the important concern is that this market demand is
desired demand from the users and investors.
As far as the users demand is concerned, tenants will be likely engaged in the more
careful planning as they select office space in the bad situation of market, because
they do not know how much the worse market will be, and how long it will last. They
are always more cautious for their decisions. Conversely, their reflections have
influenced the other market participants’ decisions, like developers, investors and so
on.
As far as the investors demand is concerned, the situation is the same that due to the
uncertainty for the future condition, investors always put aside or delay their plans.
After all, the profit-margin is the first principle for their considerations. The level of
yield demand stands for the investors’ expectations for future office market. Interest
rate has played an important role in the real estate market through the capital market,
which directly be taken into account by the investors for their investment strategies.
As for the possible reasons for the declined yield rate for there two markets, there
could be different points: as for Stockholm office market, this is primarily to enhance
the market share and market competition for investors; however, as for Zurich office
market it is a result of under pressure of the weak demand and overbuilding condition.
For the investors, they prefer to reduce the rental level to rent rather than empty for
the office.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
Chapter 5
19
Exploration on the office construction cycle
The cyclical behavior of construction market is concerned by a self-induced13 problem.
The purpose of this chapter is to explore some underlying traits for construction itself
and some relevant “cause-effect” market behavior.
5.1 Three stages on the building process
Normally, there are three stages on general building construction process: planning&
valuation —building construction—completing &selling. Each stage takes some time
on operating it, especially long time for the period of building construction, in terms
of itself physical traits. It spends 3-5 years for completion of one project.
5.2 “Time to Build”--- Inherent factor14
The lag between the new construction order and deliverer, covering the stage of
building construction, is regarded as the inherent factor for the physical property
market. That is to say, to be simplified, office buildings take time to construct. So this
problem will bring the rules in property market: for investors, they are forced to start
office projects based on their estimate of what economic conditions will be when the
structure is completed; for developers, they must take this problem into account and
consider the role anticipated output plays in the decision to start a project.
It is worth to think about some behavioral economics on the investors and developers,
who are mainly playing an important role in the market performance for office sector.
In the traditional economics, it is assumed that all investors are rational. However, it
is the weaker and weaker power in this opinion, when facing the real fact. One point
is that people has limited cognitive capabilities in processing information. The next
part is focus on the further exploration on the influence of behavioral bias for
investors on the office building cycle.
5.3 Hog cycle -- Explanation for overbuilding
Cobweb or hog cycle is regarded as the typical myopic behavior for office market.
Myopic behavior is the meaning of the short-sighted expectations for instance simply
assuming that today’s prices will continue into the future.
“Hog cycle” effect will be happening when the situation is: suddenly changing in the
demand side for office space, mainly affected by the change on macroeconomic
factors including GDP growth, population growth, decline in interest rate, tax reform
and so on. Demand shift from D0 to D1, there will cause the shortage of supply side in
the short term, which will be emergence the under-building phenomenon. Rental level
will increase from RO to R1 with lower vacancy rate. (See the Figure 5.1)
So suppliers will have a confident for the future upward trend on rental level
according to the current market situation. However, due to short of expectation for
future uncertainty on the volume of new order space, the market will emerge the
situation of the overbuilding phenomenon. This cause the oscillation between this
continually overshoots and undershoots between the point A and point B, in
comparison with the equilibrium point C.
13. Wheaton (1987)
14. Grenadier (1995)
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
20
Figure5.1 Cobweb process or hog cycle (Hekman, 1985)
The possible explanation of a cobweb process is due to the time lag in construction. In
addition, it was argued that forecast the future price n period was simply discounted at
consist rate(r), which ignored the change during the period. This is named irrational or
myopic price forecasting by compared the perfect price in terms of rationality, (with
formula as below)
Pt = R t-n / r (myopic/ prices) VS. Pt = R t-1 (1+r) - R t-1 (perfect foresight) 15
5.4 Current problems
Stockholm construction market
According to reports of Newsec, in brief, we can know about the general situations
about the activities of the future new emerging buildings. Most of important, in
comparison with Zurich situation, the condition has dramatically declined from this
year, by one fifth of level of last year. (See Table 5.1)
Table5.1 Situation of annual new order (Source: Newsec)
year
the office space(sq.m)
2001
2002
260,000
2003
190,000
2004
100,000
2005
<20,000
2006
<40,000
15. Wheaton (1999)
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
21
There could be possibilities for these changes: market players have realized it is time
to reduce the volume of buildings, which ensured the high level of incremental rental,
in turn directly influenced property yield, and eventually satisfied their investment
return.
Zurich construction market
It is hard to obtain the detail condition of new building in the following years, in the
light of market reports; the market has become the harder and harder to predict and
has lots of risk and uncertainty for the future trend. From the perspective of current
situation, there could be slight signal to illustrate the volume of new order will
continue to increases.
Overbuilding phenomenon has become the big question for the market. In compared
with the reaction for overbuilding problem for Zurich office market, the Stockholm
sector seemed to react so quickly that it has not suffered from the long time recession
period.
The core difference
The biggest difference between Stockholm and Zurich sector, perhaps, is a strategy
for controlling the new construction space: the limited and dramatically dropping on
Stockholm; in contrast, the increasing trend on Zurich office, it seems not to care
about the high vacancy level. It is obvious to observe that the future trend on recent
three years which are of importance for the office market performance.
Figure 5.2 shows the respective situation of new office space in recent three years
from 2004 to 2006. The most difference is what will happen in this year: lots of
volumes of new order will emerge for Zurich region; in contrast, the constricted
situation is prevailing in the Stockholm market.
Figure 5.2 Comparison on situation of new office space (completed at the end of year)
120,000
100,000
80,000
stockholm
60,000
zurich
40,000
20,000
0
2004
2005
2006
In a conclusion, due to this physical trait of time to built, the office building
investment decisions are difference from other investment decisions for market
participants. The consequences of decisions have always taken some time after project
started.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
22
Chapter 6 The findings from the perspective of leading market
players
Integrated organizations are basically characteristic of this kind of group, ensuring
their successful business operation, in my opinion. I defined this kind of company as
the leading market player, due to its inherent business target and relative strategies. It
is worth to research because their individual decision will directly, in a largest degree,
influence the whole market performance.
The finding is that they have the common sense: the intergraded group as the position
of not only developer even general contractor for project development in the local
regions, but also property/portfolio owner/investor in some degree at their disposal.
That is to say, they may reflect a combination of the developer and investor, even a
general contractor. This feature becomes the criteria for selection work to research in
the real market condition. It is worth to investigate their influences for entire market
situation.
Skanska is considered as a leading market player for Stockholm office market. Allreal
group is selected as a leading market driver for the city of Zurich office market. In the
following part, I will introduce some details on these two companies’ business
operation and strategies, which eventually illustrate some interesting findings. The
structure is due to design of interview questions: business strategies—some
considerations — opinions on current local market.
6.1 Stockholm: Skanska --- a leading local property developer
(Background)
Skanska is a leading construction company with concerted on developing, building and service the
physical environment for living, working and traveling, which was established in 1887, with 54,000
employees. Commercial real estate project is one of important part of Skanska business which is focus
on the Stockholm region.
6.1.1 Business strategies
The business strategy of Skanska is to undertake all risks during the entire
development cycle of a project from the initial land purchase to the final divestment.
There are 6 steps during the entire development cycle of projects, including the
zoning, design (pre-construction), leasing, construction management, property, and
sale. Moreover, the focusing point is concentrated on planning, leasing and
divestment. The strategies of project operations are to initiate, develop, lease and
divest commercial real estate properties.
Initiate planning is the key to the start-point of a successful project, which is involved
in the all relevant information and materials on the project, such as financing plan,
conceptual design, and cost control and so on. It normally spends one to two years to
discuss.
During the initial stage including the construction stage, the developers will seek to
look for the target customers and to negotiate with them, which ensure the successful
of activities of leasing or final delivery. On average, one project will include three
stages: initial planning, construction, and divestment which spend two years, three
years and two years respectively.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
23
It is significant to know that during the entire period of project development from the
initial idea to final delivery the strategy of Skanska will always keep the eyes on the
market situations, which in turn ensure the latest / up-date information to in time
adjust their decisions and schedules.
6.1.2 Project decision making
The final of project decision is a result of a combination of the market situation and
risk/return requirement established, which illustrates that the decision making is
derived from the exogenous and endogenous drivers. In addition, there are two target
customer categories: tenants (leasing market), investors (investment market
international / domestic) investigation on the change on latest leasing market will
generate the new projects.
In addition, as a leading local construction company, the decision of Skanska will
influence the activities of other players in response to the current Stockholm market.
The fact that the volume of new order began to dramatically decline from 2004 to the
following two years has directly affect the supply side of the Stockholm office
market , which in turn directly influence the trade-off between demand and supply to
lead to increasing in the rental level.
With the focus on the big uncertainty/ risk to the project decision making, it is
difficult to outline because different projects have their respective unique situations.
However, the strategy is still with intention to the office market itself, which in turn to
seek potential customers, to observe the change of market situation, consequently to
adjust the each project. Diversified and flexible premises are more attractive to
customers including both tenants and investors for Stockholm market. The transaction
activity of four office premises sold to Blackstone is good powerful case to illustrate
this point.
6.1.3 Current Stockholm office market
Both the leasing market and the investment market are concentrated on project
decision making as the basis of two customer categories of tenants and investors. The
positive expectation is predicted to increase in the following three years.
Leasing market has focus on the investigation on change of rental value and vacancy
rate level. The opinion is in 2004, the market has bottom out, and the trend of future is
recovery to upward.
Current investment market is attractive for the domestic investor rather than
international sector. Transactions volume reached at a top level in 2004. The reason
for change of transaction type from international investor to domestic investor is
primarily not due to decline in the demand side but due to the shortage of attractive of
projects. The most interested is the high quality of products in the good location.
6.2 Zurich: Allreal group – a leading market player in Zurich region
(Background)
Allreal Holding Group was founded in 1999, which the former is a leading project developer in Zurich
region established in 1970, with 230 employees. The majority business was embodied into the real
estate, project development, management and real estate service, with focus on the domestic
geographic area, especially Zurich region in Switzerland.
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
24
6.2.1 Business units
The most significant characteristic of Allreal Group is that it combines a real estate
portfolio with the activities of a project developer and general contractor.
Consequently, it has two major divisions: real estate investment and project
development.
The duty of the real estate division is embodied into the active portfolio management,
providing stable earnings, which the share of commercial real estate reached 75%
with focus on the Zurich region. The division of project development is responsible
for the all relevant project decision making work from the initial idea to the
construction process.
6.2.2 Business strategies
We can realize that the strategy of the successful operation of Allreal Goup is to
diversify the business segment and add value for shareholders or investors, with
streamlining management and controlling the two functions of real estate and project
development. Table 6.1 is a good picture to illustrate the recent operation activities in
response to soften the market oscillation for the city of Zurich region.
Table 6.1 City of Zurich (Source from the annual reports)
year
2001
2002
commercial real estate
portfolio
number of properties
15
26
useable floor space(,000m2)
76
181
Vacancy rate (%)
1.2
4.9
Gross yield (%)
6.0
6.1
portfolio under construction
useable floor space(,000m2)
26
16
investment volume(CHF million)
115.0
200.0
land reserves
property area (,000M2)
2
investment volume(CHF million)
35.0
real estate for development
land reserves
investment volume(CHF million)
building under construction
investment volume(CHF million)
2003
2004
2005/6
24
159
1.4
6.6
25
173
3.2
6.6
26
199
3.8
6.5
38
185
38
185
38
185
7
35.0
15
37.0
15
37
183.0
241.0
257.5
38.0
27
127.5
104.0
0
104.5
115.5
As for the division of real estate management, the selection of portfolio with potential
development has become the important step to ensure the strategies of value added.
The portfolio of residential as well as commercial buildings is selected with intention
to business centers, because it is able to soften market fluctuations and, to a certain
degree, even compensate for them.
As for the division of project development, the focus point is concentrated on the time
to built, considering the market situation and future trend during the period of
construction. As a financially strong general contractor, Allreal will undertake all the
risk during the entire project development cycle. It requires the emphasis on the
market analysis and market evaluation for project decision making.
YING WU (KTH, 2005)
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In the positive economic environment, taking for example of the year of 2002, the
business was focusing on the purchase of portfolio including the residential and
commercial sectors in a good location, especially with focus on the Zurich business
centers. The rapid expansion of portfolio has created the growth of rental revenue.
In a different market situation, take the example of the year of 2003, the slight decline
in the activities of project development as a result of sluggish economy, which was
compensated by the rapid expansion of portfolio. The vacancy rate of 1.4% was lower
than the average local market indicator.
In the uncertain economic environment as well as the weak demand for market
situation of the year of 2004, the prudent actions have been taken. The four properties
have been sold to obtain a positive capital gain.
6.2.3 Current Zurich office market
The opinion for the current Zurich office market is that the market is waiting for the
upward for the economic condition, with full of large uncertainty. The actions are
more prudent than before. However, the company is confident to positive growth of
business based on their unique strategies. They are concentrated on the change of
current rental market and the activity of new construction this year.
6.3 The final findings
The derived demand VS heuristic supply have streamlined to drive the co-movement
of property market, especially on office sector, which has been referred to in the many
previous papers, on the other side, the interesting point is that there would be leading
market players for controlling the market performance, from the perspective of both
self-motivated and market oriented.
The feature of the leading market player is always characterized by an integrated
organization with the combination of different roles including all ranges of real estate
industries. The common point is illustrated the framework of “develop—built—
divestment” and services all ranges of real estate industry from the initial idea to final
delivery. The unit of this kind is specialized roles – as project developers, investors
and builders. In this way, the group’s strategy can be maximized, both in terms of
customer focus and benefiting from the group’s capital.
The finding is that the independent financial power for the individual company has
played an important role in the business operation in all phases of the project
development. When to start with project construction is the key for the final succeed
for the project, which must consider not only the endogenous business mission of
risk/return requirement but also the exogenous uncertainty of market changes.
Flexibility is significant for the successful business strategies for leading players,
which in turns directly influences the local property market performance.
As for leading market players, they lead to the local market situation in some degree
as well as are influenced in the market, which the relationship between them is
interesting to explore. In addition, the interesting is that they are always local leading
project development companies. Due to multiple roles of undertaking all the activities
of project development and final divestment from the viewpoint of different parts,
YING WU (KTH, 2005)
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26
they have integrated to consider all the relevant information /materials when the
making decision in each stage.
Figure 6.1 shows the relevant personal viewpoints for the effective market operations.
The closed relationships between the market and market participants as the whole unit
and individual parts have played the interaction roles between them, consequently,
reflecting the market conditions.
Figure 6.1 The structure of market operation
Leading market
players
Marekt
behavior
OUTPUT
INPUT
Economic
Financial
Physical
Behavioral
Stragegical
Individu
al player
Entire maket
performance
Contribution
for Marekt
perfomrance
Analysis
Decision
Others
As for property owners, they have the right of transactions of properties at their
disposal in terms of their investment policies. Market analysis and market evaluation
are the most important for their decision makings on activities of transaction.
As for property investors, they will buy and sell their portfolio in terms of their
investment policies, including risk/return requirement, share price, and dividend
policy. They will choose the potential attractive portfolio with a good location and
high quality products, which soften the uncertainty change for market oscillation.
As for project developers, they are always responsible for the all ranges of project
development from the initial idea to final divestment. Consequently, the change of
market at any time is always their concern, especially if they are general contractors.
As for the general contractors, like project developers, they must consider all relevant
possibilities for the construction process. Making use of their professional experience
and ability for future trend of market, they will operate the entire project collaborate
with other divisions and outside investors.
YING WU (KTH, 2005)
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Other important thing is that there are several leading market indicators which directly
influence the project decision making. The relevant companies and groups must take
it into account and combine it with other individual and unique business strategies to
final draw a decision.
In the Rental market: market rent and vacancy rate as a clear indicator are to illustrate
the current leasing market. In the investment market: property yield and interest rate
have been dominant role for the investors to deal with their investment activities. In
the development market: absorption and vacancy rate will reflect the current market
performance, helping the participants to evaluate their decisions.
YING WU (KTH, 2005)
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Chapter 7 The final discussion
As for the extension part of interview work, this chapter is focused on discuss the
significance of human being on the market operation. Through the feedbacks in
response to the interview question, I realized the behavioral effects of some leading
market players had played a dominate role in the decisions from the other small
market participants, and in turn had played an important role in the influence of the
entire market performance.
The final discussion
Overbuilding phenomenon has always been concentrated on the supply side in terms
of previous articles. However, I realized that there is an interesting phenomenon in the
real market, which is due to some reasons; the real market participants always do not
admit this problem for the local market. Behavioral problems in the developers are
concentrated on the explanation of overbuilding phenomena. As for the overbuilding
problem, although it is difficult to description of this issue, there could be some
possibilities to explain:
Overconfidence is of importance for the project decision, for both investors and
developers based on the survey and interview work. In my opinion, there could be less
or more game theory. On the one side, it is obviously for market players to expect an
excellent future trend which directly influence their business, as a role of process of
transaction delivery. Only if the big picture is upward, the individual benefit will be
concerned.
Herd behavior does always exist in the market game with consist of lots of individual
groups, but it is not important enough to create a serious problem if individual
remains the rational expectation. In some degree, it plays a role of driver for market
behavior.
Myopic expectation plays an important role in the influence on market situation, the
interview work will support this point, and mainly the investors will be concentrated
on the current and short run situation on the market.
Most of important, the role of the leading market players is the most important in the
office construction market , which in turn influence the entire office market
performance. Because they always blend integrated unit into these above three
important behavioral models, moreover, they have directly influenced other market
participants, as an origin of problem. As a result, the significance of human being in
the project decision making is worth to research.
YING WU (KTH, 2005)
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The Cyclical Behavior of Office Market
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Interviewee:
Skanska:
Mr. Claes Larsson, Business Unit President
2005-Nov-18
Allreal Group:
Mr. Diefer Kräuchi, Portfolio Manager
2005-Nov-24
YING WU (KTH, 2005)
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Appendix A: Some details on Stockholm/Zurich market performance
Stockholm office performance data
The current condition for the office sectors on the greater Stockholm area which is
capital for Sweden remains its steady improvement. The increase in the rate of officeemployment, the increase in the rental level, the decline in the vacancy, and the
increase in the new construction at a modest level can provide a general profile of the
current situation for office sector on Stockholm area.
• Rental level
The range of market rent for office premises is SEK 3000-3800 per m2 in the
Stockholm CBD AA, which with comparison of SEK 1400-1800 per m2 in prime
suburban locations. Same results can be obtained from the profile of vacancy in the
office sector. The office vacancy rate has increased over the last three years, reaching
12% overall in Greater Stockholm area. Moreover, the situation of CBD is expected
to be sound which is above over the average of the greater Stockholm area.
Figure A.1(Source: Jones Lang LaSalle )
Prime rent / Vacancy rate
Prime yield / Inflation
• Prime yield level
The market has experienced a downward yield shift during these years since 2002. In
the CBD, prime yields shifted from 6.38% to 5.88%, though outside the CBD yieldshift was less significant.
Figure A.2 Yield, office property – Stockholm, 1994-2004, (Source: Newsec)
YING WU (KTH, 2005)
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• Development market
Since the 2004, the new construction activity in Stockholm was lower. The total of
new construction is expected to complete 160,000 m2 during the three years from
2004 to 2006, which 100,000 m2 has been completed in the end of 2004.
Zurich market performance data
The current condition is stagnation and future for the office market is uncertainty. The
serious problems on overbuilding and weak demand occur in the current office market,
with the continuing decline in the rental level, the top high level of vacancy rate, and
surplus new construction supply.
The office market for Zurich city is divided into five mainly segments in terms of its
geographical characteristics. The CBD is concentrated on the bank, insurance, and
financial sectors. The Zurich-west is planned to be the industrial zone with focus on
the telecommunication, IT business sector; the Zurich- north is to concentrate on the
headquarters of international companies. In the west of Zurich city, Altesteen is to be
competition for the location of IBM Tower.
Table A.1
Office Market segment for Zurich city
Zurich office
typical occupier
CBD
west
north
seefeld
south west
financial
Telecoms, IT
Headquarters
legal, professional
small businesses
Source: SPG Intercity, Cushman&Wakefield
• Rental level
Recently the slump condition on the market performance takes place in the Zurich
office activity. The average rent for the city as a whole is currently around CHF 310
/sq. m/annum In the CBD, the situation is slight better than others business
submarkets. The rent level in the last half year was the CHF 790- 770 / sq.m / annum
in the best location in the Zurich city. In Zurich –west and north, the change on rental
level is not significant, still at the level between CHF 260-280/sq.m/annum.while in
the Zurich-Altstetten, the rental level has fallen to an average around
CHF220/sq.m/annum.
The level of vacancy rate reached a high level at 5.0% in 2004 which was top record
on the history of 14 years from 1990 to now, due to the weak demand for the office
sector. There is a lot of available office space to provide in the current market.
Figure A.3 (Source: CB Richard Ellis-PI Performance)
Zurich prime& average rents
Zurich vacancy rate
YING WU (KTH, 2005)
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• Prime yield level
Investment return in office markets has experienced high growth in the early 1990s,
and then it remained the high level 6% for the several years, however, from the 1997,
it was decreasing with the rate of 0.32% every year, to the 2003, it was 5.2% at the
level of highest office yield. In the compared with others EU office market, the level
on yield rate is still the higher.
Figure A.4 Zurich highest office yields
Figure A.5 Zurich supply of office space
• Development market
Recent three years, an overbuilding problem is more and more serious taken place for
the office market in the Zurich city. In the 2003, the supply had dramatically
increased with emergence of the new building activity across the entire city. By now,
there are around 530,000 m2 or 9.1% of the total office stock for available in the
market, with approximately 134,000 m2 of this in the city center (CBD) alone. As for
Zurich-west and north submarkets, supply has been stable at 12.5% and 11.9%
respectively. And around 100,000 m2 of new office stock will be delivered to the
market in 2004 and 2005 which caused the state of tension for the Zurich office
market and brought the more risk for the uncertainty in the future.
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Appendix B: Interview questions for Skanska
The cyclical behavior of office market
Date:
Company:
Name:
Position:
This interview is a part of Master of Science thesis at Royal Institute of
Technology (KTH) in Stockholm. The study is concentrated on
understanding of the current office market performance from the perspective
of the practice- oriented. The research is with the intention to the exploration
of several underlying factors driving for the some fundamental phenomena
for the cyclical behavior of office sector.
The question is organized with the three parts:
1. Business strategies and real projects (detail-oriented)
2. Some considerations on project decision making
3. common opinions on current Stockholm office market
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1. Business strategies (detail- oriented)
This part of questions is focused on the recently several typical projects in your company involving
some cases sold office properties to Blackstone recently and ongoing construction completed 2006.
1.1 Your core business
9 It is said that Skanska is a leading domestic construction development
company in Sweden. The basic structure is planning, construction and final
sell. Do you agree this simple structure point for interpreting your core
business?
Totally agree
agree partly
disagree
no opinion
Comments:
1.2The features of office properties in Stockholm sold to Blackstone recently
It is said that 4 office properties in Stockholm had been sold to the Blackstone
company recently, with the EU117 million.
9 precise date of final transaction
Comments:
9 The reason why Blackstone was interested in these 4 properties
Comments:
9 How long for the negotiation from the initial interest to final contract
Comments:
9 The motivation for building these properties at that time
Comments:
1.3 The situation of several ongoing projects
There is one ongoing project comprising the 18,000 m2 headquarters of prizer in
sollentuna with expectation competition to 2006. And the other is office property
Gångaren in Stadshagen with 11,000m2 (newsec8, 2005)
We are now clearly seeing scope for new, modern and flexible premises, despite the fact
that vacancy rates in older properties are still generally high. The supply of existing large
modern office premises has started to decline, which is why we are commencing a new
office development project in the rapidly growing Lindhagen district," says Hakan
Danielsson, President of Skanska Real Estate Stockholm, reported in the Aug.11.2005.
YING WU (KTH, 2005)
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9 Please briefly describe the some important features about these ongoing
properties in Stockholm respectively.
Comments:
Are there any potential interested tenants for these ongoing projects now?
Yes
no
If so, what is going on? Or what are especially advantages of your project with
attractive for the tenants?
Comments:
If not, what is your plan ?
Comments:
Are there any potential interested investors for these ongoing projects now?
Yes
no
If so, what is going on? Or what are especially advantages of your project with
attractive for the investor?
Comments:
If not, what is your plan?
Comments:
1.4 future plan
9 Excluding above mentioned ongoing properties, is there any plan for building
office properties in Stockholm?
Yes
no
not clear
according to market change
If yes, please some details what is going on like the size, the potential tenant and
the expected beginning date or etc.
YING WU (KTH, 2005)
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Comments:
If no, please briefly your plan
Comments:
YING WU (KTH, 2005)
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2. Some considerations on project decision making
In this section, some exploration in-depth questions are with the intention to the important, underlying
consideration factors during the project development process for interviewee in accordance with your
working experiences.
2.1 The process of project development
1
The initial phase
2
The investigation phase with investment analysis
3
Time to decision
4
5
Production phase
Finish out phase
9 There is divided into five different phases during the project development
from the initial idea to the final delivery. Do you agree this process in your
projects operation?
Totally agree
agree partly
disagree
no opinion
Comments:
9 Which phase do you think has had the most degree of uncertainty/ risk for the
project development process in generally?
Phase 1
Phase 2
Phase3
Phase 4
Phase5
9 How to understand this uncertainty/ risk?
Comments:
Or please mention the three more important aspects on uncertainty / risk
rental uncertainty
economic uncertainty
market potential competitor
the change of demand
the change of supply
construction cost
contingencies uncertainty
Comments:
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2.2 project making decision
9 In generally, when complete the phase of investigation especially economic
factors; the next work is for project making decision. But usually there exists
the time postponed phenomenon.
When to build the project after the investigation work in general? How long is
for the time to decision?
Immediately
1-3 months
<6 months
>12months
> 1.5 years
>2.5 years
<12months
9 Is it a difficult or easy for making decision?
Difficult
easy
If difficult, do you postpone the decision many times?
Yes
no
Is anyone extremely enthusiastic about the project during this time?
Comments:
2.3 behavioral influences on decision making
9 As a leading developer in the Sweden, do you realize that your decisions will
in some degree affect the Stockholm office market performance from the
perspective of developer?
Yes
No
not clear
Or do you realize that you will compare with other competitor projects
whether cognitions or not when decision making?
Yes
No
not clear
If yes, how to interpret this phenomenon?
competition situation for the office market?
Whether is it created the
Comment:
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3. Common opinions for current Stockholm office market
In this section, I will enquire some basic questions about the current Stockholm office market. The
questions are embodied to your opinions and ideas about the recently market performance as well as
your expected viewpoints on the following market situation.
3.1 The characteristic of Stockholm office market
9 High liquidity, high transparent and professional background and low
corporate tax are concentrated on the contribution for the current Stockholm
market, which will influence in part on the future market situation. Do you
agree this point?
Totally agree
agree partly
disagree
no opinion
Comments:
9 It is said that the high transaction volume, the high vacancy level and possible
problem of over building will be regarded as the important problems of the
current Stockholm office market. Do you agree this point?
Totally agree
agree partly
disagree
no opinion
Comments:
9 Please, mention the five more important possible influence variables for
current office market for Stockholm region in your opinion.
Comments:
1
2
3
4
economic uncertainty
rental uncertainty
market size
capitalization rate
9
10
11
12
17
18
19
20
past rental value
share price
bond and Tbill yields
construction cost
13
14
office-floor space(total/new/changes)
vacancy
absorption
regional GDP
employment rate or unemployment
rate
employment rate growth
5
6
7
expectation for rent increase
anticipated output
myopic behavior for
investors
21
22
cost of capital
yield/ capital value
15
interest rates(long and short term)
23
16
inflation
24
tax reform
construction lag
problem
8
leasing behavior
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3.2 Your opinions on some prevailing market indicators
(Rental market)
9 The rental level had dramatically declined from the 2000, and the slight
increase trend emerged from 2004 which is predicted to be continuing upward
for next year. Please mention the three more important for this situation
respectively.
A
Serious drop past time (20002003)
B
Slight increase last year(2004)
1
2
3
4
5
recession on regional economic
growth
IT recession from 1999
corporation tax
construction cost
interest rate
1
2
3
4
5
corporation tax
construction cost
interest rate
regional economic growth
Comments:
Market rents in accordance with the Newsec
1. CBD AA sek 3,000-3800 per m2
2. CBD A sek 2,300-2,800 per m2
3. In the central area SEK 1,500-2,300 per m2
4. Prime suburban location SEK 1,400-1,800 per m2
9 Would you tell some features on the rental market in your opinion? Or how is
your felling about above market indicators? (multi-choice)
Over-perform
under-perform
Approximately
far away reality
not clear
Comments:
9 Do you think there is the possible for the room of the rental level growth in
the coming two years?
Yes
No
If yes, Why?
Comments:
YING WU (KTH, 2005)
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If yes, how much degree would be increased based on current average level,
assumed the following five years?
5%
<10%
<15%
<20%
>20%
Comments:
(Property yield)
9 It is said that in 2004 the high transaction volume reached the top level of SEK
93 million, Moreover, three properties were sold by a amount of EU 253
billion for your company in accordance with the autumn report of Newsec
How to interpret the high transaction for office market recently?
Comments:
9 Do you agree the thing that the higher transaction activities, the higher value
of property?
Totally agree
agree partly
disagree
no opinion
Comments:
9 Recently the foreign investors are more attractive on Stockholm office market,
do you think it is a good thing for current Stockholm market?
Yes
no
it doesn’t matter
If yes, the reason
If no, the reason
YING WU (KTH, 2005)
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(The volume of new building)(data based on Newsec)
9 Table below shows the situation of new emergence building recently years
from 2002 to 2006 expected. Do you think whether the data is precise or not?
year
2002
2003
2004
2005(ex)
2006(ex)
Precise
new building volume(completed
by the end of year)
260,000 M2
190,000M2
100,000M2
<20,000M2
<40,000M2
Approximate
Far away
not clear
If you think the data far away the reality, please mention your opinion
Comments:
9 The reports mentioned that the vacancy rate had remained at a high level in
spite of the slight decline from this year. How to understand the current supply
side of office construction performance under the situation of high vacancy
rate?
Comments:
9 The time to built is very important worth to be consideration when project
decision making. Do you agree this point?
Totally agree
agree partly
disagree
no opinion
In addition, how to understand this physical problem from the perspective of
practice- oriented?
Comments:
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45
3.3 The purpose for research of the current market performance
9 Do you agree that the study of current market situation is a good approach to
prediction for the future forecasting research?
Totally agree
agree partly
disagree
no opinion
9 Please mention the important submarket indicators for project decision making.
rental submarket
investment
submarket
development
submarket
market rent
share price
new order
prime rent
property yield
stock
effective rent
interest rate
absorption
asking rent
vacancy rate
vacancy rate
Comments:
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46
Appendix C: Interview questions for Allreal Group
The cyclical behavior of office market
Date:
Company:
Name:
Position:
This interview is a part of Master of Science thesis at Royal Institute of
Technology (KTH) in Stockholm. The study is concentrated on understanding
of the current office market performance from the perspective of the practiceoriented. The research is with the intention to the exploration of several
underlying factors driving for the some fundamental phenomena for the
cyclical behavior of office sector.
The question is organized with the three parts:
1. Business strategies and real projects (detail-oriented)
2. Some considerations on project decision making
3. common opinions on current Zurich office market
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1. Business strategies (detail- oriented)
The first part is focused on your typical business and function sectors. Moreover, there could be
concerned with your business strategies.
1.1 Your core business
9 Please descript your core business.(multiple choice)
Real estate investment
Project development
Portfolio management
Consultant/service
General contractor
others
9 Please in brief introduce them and their respectively weighted in your business
strategy.
Comment:
9 If possible, tell me what your market share is in Zurich office construction
market in your opinion.
Comments:
Or:
< 25%
<50%
<75%
<80%
1.2 your recent business activities
9 Please introduce something your recently/ ongoing projects (background, time,
transaction condition, etc)
Comment:
1.3 your future in the following two years
9 please introduce your future plan in the next two years, including your
investment activities and project development
Comment:
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2. Some considerations on project decision making
In this section, some exploration in-depth questions are with the intention to the important, underlying
consideration factors in your business strategies. There could be divided into two parts for enquiry: real
estate investment and project development
2.1 real estate investment
9 please tell me which sector is your most interested in portfolio investment
commercial sector
residential sector
other
Furthermore, introduce some keywords on your interested issue.
Comment:
9 Please describe what original idea is for your investment on commercial sector.
Comment:
9 Normally how much is your risk/return requirement?
Comment:
9 Please mention the three more concerned during your investment decision
Risk/return requirement
Leasing market
market demand
rental market
leverage structure
current property yield
Comment:
2.2 project development
9 Please mention which stage is most important in your project development
decision making. (as below figure)
Comment:
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49
1
The initial phase
2
The investigation phase with investment analysis
3
Time to decision
4
5
Production phase
Finish out phase
9 What is your most concern during your project decision making? (multiple
choice)
rental uncertainty
economic uncertainty
market potential competitor
the change of demand
the change of supply
construction cost
contingencies uncertainty
Comment:
9 How to face the problem of time to built during the uncertainty of economy
change? What is your strategy for avoid this risk?
Comment:
2.3 behavioral influences on decision making
9 As a leading integrated competitive property developer/ positive general
contractor in the Swiss, do you realize that your decisions will in some degree
affect the Zurich office market performance from the perspective of developer?
Yes
No
not clear
Or do you realize that you will compare with other competitor projects
whether cognitions or not when decision making?
Yes
No
not clear
If yes, how to interpret this phenomenon?
competition situation for the office market?
Whether is it created the
Comment:
YING WU (KTH, 2005)
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50
3. Common opinions for current Zurich office market
In this section, I will enquire some basic questions about the current Zurich office market. The
questions are embodied to your opinions and ideas about the recently market performance as well as
your expected viewpoints on the following market situation.
3.1 The characteristic of Zurich office market
9 Would you tell me whether there is a negative problem for current Zurich
office market in your opinion?
Yes
no
not clear
If yes, please mention it in your opinion.
Comment:
9 According to the report of Colliers, there would be bad new for market players
including your companies: Due to weak demand and over supply for current
office market for Zurich region, the future trend is still hart to predict. Do you
realize this serious problem? / do you agree this point?
Yes
no
not clear
If yes, please mention your opinion
Comment:
If no, please mention your reason
Comment:
9 Please, mention the five more important possible influence variables for
current office market for Zurich region in your opinion.
Comments:
1
2
3
4
economic uncertainty
rental uncertainty
market size
capitalization rate
9
10
11
12
17
18
19
20
past rental value
share price
bond and Tbill yields
construction cost
13
14
office-floor space(total/new/changes)
vacancy
absorption
regional GDP
employment rate or unemployment
rate
employment rate growth
5
6
7
expectation for rent increase
anticipated output
myopic behavior for
investors
21
22
cost of capital
yield/ capital value
15
interest rates(long and short term)
23
16
inflation
24
tax reform
construction lag
problem
8
leasing behavior
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3.2 Your opinions on some prevailing market indicators
(Rental market)
9 Would you tell me what the level of current rent is for CBD of Zurich city?
Comment:
9 According to report of Colliers, this year, the rental level dramatically drop by
11% in compared with before. Do you agree this issue?
Totally agree
agree partly
disagree
no opinion
If agree, please mention your suggestion and opinion
Comment:
If not agree, please mention your reason
Comment:
9 As for the future trend, what is your opinion on the trend of rental level?
Increased
declined
uncertainty
Please mention some details
Comment:
Given increased rental level, how much degree would be based on current
average level, in the following five years?
<5%
<10%
<15%
<20%
>20%
Given declined rental trend, how much degree would be based on current
average level, in the following five years?
<5%
<10%
<15%
<20%
>20%
(Property yield)
9 Please mention your opinions with intention to current declining property
yield.
Comment:
9 Do you agree the thing that the higher transaction activities, the higher value
of property?
YING WU (KTH, 2005)
The Cyclical Behavior of Office Market
Totally agree
agree partly
52
disagree
no opinion
Comments:
9 Would you introduce the foreign and domestic investor’s reactions for current
office market in your opinion?
Positive
negative
no clear
9 Do you think it is time for bottom out for transaction activity for Zurich office
market?
Yes
no
not clear
If yes, please mention details
Comments:
(The volume of new building)
9 According to the report of Colliers, overbuilding is serious problem for current
market, do you agree this issue?
Totally agree
agree partly
disagree
no opinion
Comments:
9 Table below shows the situation of new emergence building recently years
from 2004 to 2006 expected in the city of Zurich. Do you think whether the
data is precise or not?
year
2004
2005
2006
Precise
Zurich
46,600
96,200
84,800
Approximate
Far away
not clear
‘
If you think the data far away the reality, please mention your opinion
Comments:
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2
3
4
herd behavior
overconfidence
myopic behavior
confirmation bias
5
6
7
8
53
suddenly change of market demand
time to built
project decision
others
9 Would you mention your opinions for the cause of overbuilding problem?
Comment:
3.3 The purpose for research of the current market performance
9 Do you agree that the study of current market situation is a good approach to
prediction for the future forecasting research?
Totally agree
agree partly
disagree
no opinion
9 Please mention the important submarket indicators for project development
decision making.
rental submarket
investment
submarket
development
submarket
market rent
share price
new order
prime rent
property yield
stock
effective rent
interest rate
absorption
asking rent
vacancy rate
vacancy rate
Comments:
YING WU (KTH, 2005)