Journal of Property Investment & Finance

Emerald Group Publishing Limited
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Latest documents

  • Guest editorial: Sustainability and climate change; the challenge ahead. With dedication to Sarah Sayce
  • Climate risks and their implications for commercial property valuations

    Purpose: The authors outline a framework that captures the channels through which physical climate risks could affect cash flows and pricing of income-producing real estate. This facilitates detailed consideration of how the future performance of real estate investments could be affected by such risks. Design/methodology/approach: This is a literature-based investigation that draws on work commissioned by UNEP-FI (Clayton et al., 2021a, b). It extends this work to consider in more detail the channels through which climate risks may impact property performance and the implications for the valuation community. Findings: Recent empirical studies have identified more instances where pricing is reflecting both current and anticipated climate risks. Market valuations cannot properly incorporate climate risk without clear evidence that it is priced by market participants, but valuers can advise clients on the potential for future impacts. Research limitations/implications: While inferences can be made from studies of residential real estate, more research on commercial real estate pricing and climate risk is required to assist valuers and their clients, as well as other stakeholders in the real estate market. Practical implications: Differences between a Market Value and an Investment Value context are considered, and how valuers could and should account for climate risk in each setting is discussed with reference to existing professional standards and guidance. Originality/value: The article synthesises a wide range of literature to produce a framework for the channels by which real estate values could be influenced by climate risk.

  • Editorial: 40 years of the Journal of Property Investment & Finance
  • The increasing importance of environmental sustainability in global real estate investment markets

    Purpose: Within the context of ESG (Environment, Social and Governance), environmental sustainability has taken on increased global importance in recent years. Similarly, real estate investment managers in developing their global real estate investment portfolios need a fuller understanding of the ESG and environmental sustainability dimensions of these global real estate markets for more informed real estate investment decisions. Using the JLL GRETI sustainability sub-index, this paper examines the environmental sustainability transparency status of 99 global real estate markets over 2016–2020 and explores various strategic issues regarding ESG and environmental sustainability; particularly the critical issues relating to climate risk mitigation, climate resilience and zero-carbon. The current status of environmental sustainability in these 99 real estate markets is assessed, with areas for “best practice” improvement identified to the benefit of real estate investment managers; particularly the improvements needed in ESG to support real estate investment in the emerging real estate markets. Design/methodology/approach: The JLL GRETI sustainability sub-index is analysed to examine strategic issues relating to environmental sustainability transparency. 99 real estate markets are assessed globally for a range of critical ESG issues over 2016–2020. Differences between the developed and emerging real estate markets are highlighted. Findings: Considerable variation was seen in the ESG and environmental sustainability practices, procedures and frameworks across these 99 real estate markets. This was particularly evident amongst the emerging real estate markets. Compared to the other five dimensions for real estate market transparency, environmental sustainability was seen to be well behind these other dimensions in most markets. Progress has been made in recent years, but it has been slow and steady rather than at a dynamic level. Clearly, more is needed globally to enhance the stature of environmental sustainability in the context of an increasing focus on ESG and specifically on climate risk mitigation, climate resilience and zero-carbon in real estate investment. Practical implications: With ESG and environmental sustainability taking on increased importance across the international real estate markets, it is important that real estate fund managers have a full understanding of the ESG and environmental sustainability status of these real estate markets where they may be considering real estate investment opportunities; this includes both the developed and emerging real estate markets. This is essential to ensure future capital raising for new funds, as well as supporting the global ESG agenda by the real estate investment community. Specific strategies are also identified for emerging real estate markets to improve their environmental sustainability practices and ESG status. Originality/value: This is the first paper to use the JLL GRETI sustainability sub-index to assess the environmental sustainability status of 99 real estate markets globally; providing strategic insights for real estate investment managers as they develop their global real estate portfolios and more fully embrace the challenges of ESG and environmental sustainability in the real estate space going forward. Specific strategies are clearly identified for all markets to improve their environmental sustainability ratings to the benefit of both global real estate investment and the broader communities.

  • Cash flows or cap rates?
  • Valuing sustainability part 1: a review of sustainability consideration in valuation practice

    Purpose: The research investigates valuers' understanding of the value of sustainability in property and its consideration in valuation practice. The paper explores the extant research that has examined valuers' perceptions of the relationships between sustainability and market values, sustainability measurement, value relationships and the standards and guidelines released industry bodies. Design/methodology/approach: This paper, part 1 of 2, reports the current state of play of valuation research in the consideration of sustainability in valuation practice and the role of industry bodies in the guidance regarding sustainability consideration in valuation. The second paper provides the next rendition of a longitudinal study examining valuation practice in Australia. Findings: The paper provides an overview of the evolution of the consideration of sustainability in property over the past two decades. Providing insights of how the property sector, its markets and valuation professionals have responded to answering the questions of: what is the value of sustainability? Whilst earlier publications both industry and academic publications alike focussed on the normative aspects of how sustainability should affect value, more recent research starts to ascertain the implications of sustainability on property values. Despite industry bodies providing information, education, guidelines and standards, it would seem that valuers in their practice are still grappling with the challenges of understanding the rapidly evolving area of sustainability, environmental, social and governance and climate risks in valuations. Research limitations/implications: The paper does not present as an authority on all research that has been conducted to date, it provides an overview of the evolving nature of both academic research and industry consideration of sustainability, particularly in a valuation context. This provides the background for Part 2. Practical implications: The broader agenda of net zero, climate change, mitigation and carbon requirements, whether driven by market forces or government legislation, are generating substantial changes in property markets, as investors reconsider their positions and model the implications of carbon emissions on their bottom lines. Government policies appear to have a considerable influence over market behaviours, which filters through to stakeholder decision-making. However, despite government policies, clear market signalling and industry body guidance on valuing sustainability, the content and depth of sustainability consideration in valuation are still limited. Originality/value: The paper provides an overview of the last decade of research into the value of sustainability and the evolving nature of information and guidance for valuers to identify, evaluate and consider sustainability in valuation.

  • Stochastic framework for carbon price risk estimation of real estate: a Markov switching GARCH simulation approach

    Purpose: The risk management of transitory risk for real assets has gained large interest especially in the past 10 years among researchers as well as market participants. In addition, the recent regulatory tightening in the EU urges financial market participants to disclose sustainability-related financial risk, without providing any methodological guidance. The purpose of the study is the identification and explanation of the methodological limitations in the field of transitory risk modeling and the logic step to advance toward a stochastic approach. Design/methodology/approach: The study reviews the literature on deterministic risk modeling of transitory risk exposure for real estate highlighting the heavy methodological limitations. Based on this, the necessity to model transitory risk stochastically is described. In order to illustrate the stochastic risk modeling of transitory risk, the empirical study uses a Markov Switching Generalized Autoregressive Conditional Heteroskedasticity model to quantify the carbon price risk exposure of real assets. Findings: The authors find academic as well as regulatory urgency to model sustainability risk stochastically from a conceptual point of view. The own empirical results show the superior goodness of fit of the multiregime Markov Switching Generalized Autoregressive Conditional Heteroskedasticity in comparison to their single regime peer. Lastly, carbon price risk simulations show the increasing exposure across time. Practical implications: The practical implication is the motivation of the stochastic modeling of sustainability-related risk factors for real assets to improve the quality of applied risk management for institutional investment managers. Originality/value: The present study extends the existing literature on sustainability risk for real estate essentially by connecting the transitory risk management of real estate and stochastic risk modeling.

  • Development in a state of climate change: an Australian case study of government response

    Purpose: This research seeks to understand the potential impact to investors from government responses to climate change risk, as reflected in changes to planning processes made after significant weather events. Design/methodology/approach: The research examines the land planning responses within a select local government authority (“LGA”) area following four significant weather events, in order to identify any changes made, and the impact on future development proposals. The LGA selected is the Central Coast Council, which is a coastal LGA in the Australian State of New South Wales. The research engaged with the publicly accessible records available on the Central Coast Council, Australian Bureau of Meteorology and other websites; and extant literature. Findings: The research reveals that some adjustments were made by the Central Coast Council, and or the State government, to relevant laws, policies and processes following these events. These changes, however, tended to focus on imposing additional requirements on future development applications, rather than on requiring changes to current structures, or prohibiting further development works. Research limitations/implications: The research has three limitations: (1) land law in Australia varies, as each State and Territory, and LGA, has specific laws, policies and processes; (2) as laws and policies are subject to change, it was necessary to select points in time at which to engage with those laws and processes; and (3) COVID-19's impact on domestic Australian travel [the authors could not travel interstate] meant only documents available on the Internet were considered, however, not all documents relating to development; or changes to laws and processes were easily accessible online. As the research focussed on one case study area, this may limit the applicability of the results to other areas. However, as extreme events are international, the related issues are a concern in all areas. Practical implications: This research confirms the results of other extant research, which observed that some risks cannot be properly mitigated, such that any development in an at-risk area remains at risk. It also identifies that more current, accurate and publicly accessible data are required to enable investors to more easily and accurately identify all risks affecting a property. Originality/value: The research provides a snapshot of one LGA's response to the physical risks arising from climate change events. As investors and other organisations integrate and build up their analysis of climate risks to their portfolios and organisations, governments become more aware of the long-term effects of climate change and consistently with extant research; this research indicates that a greater awareness is required of current risks and action to manage the short-term effects and cost challenges, in addition to the long-term adaptation requirements.

  • Editorial – Property investment – What is it worth?
  • Practice Briefing China's commercial real estate recovery, REITs and tax policies

    Purpose: Commercial property market allows for the potential development of a similar real estate investment trust (REIT) structure in China as the commercial REITs (C-REIT) such as those offshore in Hong Kong and Singapore. Design/methodology/approach: The authors examine tax codes of the present real estate investment methods in China in order to understand the interest for a new vehicle that specifically focuses on commercial real estate. Findings: Given the progress of offshore C-REITS and Chinese government's emphasis on real estate, Chinese shareholders will benefit if onshore C-REITS are issued. Crucial to the success of C-REITS will be how the C-REIT shares will be priced with respect to Net Asset Value of underlying assets. Research limitations/implications: COVID-19 pandemic has changed government priorities, and development of C-REITS in real estate for growth may no longer be a priority policy for China. Practical implications: Liquidity in real estate markets will be enhanced by C-REITS due to participation of private investors. Social implications: Onshore C-REITS would allow small and individual investors to have a stake in their home country's commercial real estate as an investment security for their own future. Originality/value: This policy article also includes an interview with real estate professional in China whose opinions are embedded and added to the article.

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