International Office Investment in Global Cities: The Production of Financial Space and Systemic Risk

AbstractLizieri C. and Pain K. International office investment in global cities: the production of financial space and systemic risk, Regional Studies. The paper explores the relationships between UK commercial real estate and regional economic development as a foundation for the analysis of the role of real estate investment in local economic development. Linkages between economic growth, development, real estate performance and investment allocations are documented. Long-run regional property performance is not the product of long-run economic growth, and weakly related to indicators of long-run supply and demand. Changes in regional portfolio weights seem driven by neither market performance nor underlying fundamentals. In the short run, regional investment shifts show no clear leads or lags with market performance.Lizieri C. and Pain K. 全球城市中的跨国办公室投资:金融空间的生产与系统性风险,区域研究。本研究探讨英国商业不动产 和区域经济发展的关系,做为分析不动产投资在地方经济发展中所扮演的角色之根据。本研究将记录经济成长、发展、不动产的产业表现与投资配置的关联。长远的区域不动产表现并非由长期的经济成长造成,并且仅与长程的供需指标有着微弱的关联。区域特征权重的改变似乎并非受到市场表现或隐含的基础所驱动。短期而言,区域投资的转变之于市场表现并非具有清晰的提前或推迟关系。Lizieri C. et Pain K. L'investissement international en bureaux dans les grandes villes mondiales: la création de l'espace financier et du risque systémique, Regional Studies. Cet article cherche à examiner le rapport entre l'immobilier commercial au Royaume-Uni et l'aménagement du territoire comme point de départ d'une anlayse du rôle de l'investissement immobilier quant au développement économique local. On présente les liens entre la croissance économique, le développement, la performance immobilière et les octrois pour investissement. La performance immobilière régionale à long terme n'est pas le résultat de la croissance économique à long terme et se rapporte faiblement aux clignotants de l'offre et de la demande à long terme. Il semble que les changements aux pondérations des portefeuilles régionaux ne sont pilotés ni par la performance du marché, ni par des facteurs sous-jacents. À court terme, le déplacement régional de l'investissement ne fait preuve ni de valeurs passées, ni de valeurs futures en ce qui concerne la performance du marché.Lizieri C. und Pain K. Internationale Investitionen in gewerbliche Immobilien in Weltstädten: die Produktion von Finanzraum und systemischem Risiko, Regional Studies. In diesem Beitrag untersuchen wir die Beziehungen zwischen dem gewerblichen Immobiliensektor in Großbritannien und der regionalen Wirtschaftsentwicklung als Grundlage zur Analyse der Rolle von Immobilieninvestitionen für die lokale Wirtschaftsentwicklung. Wir dokumentieren die Verknüpfungen zwischen Wirtschaftswachstum, Entwicklung, Ertragshöhe von Immobilien und Investitionstätigkeiten. Die langfristige regionale Ertragshöhe von Immobilien ist nicht das Produkt von langfristigem Wirtschaftswachstum und steht nur in einem schwachen Zusammenhang mit Indikatoren des langfristigen Angebots und der langfristigen Nachfrage. Änderungen in der Gewichtung des regionalen Portfolios scheinen weder durch die Ertragshöhe des Markts noch durch die zugrundeliegenden Fundamentalfaktoren bedingt zu sein. Kurzfristig weisen die Veränderungen bei den regionalen Investitionen gegenüber der Ertragshöhe des Markts keine klare Führung oder Verzögerung auf.Lizieri C. y Pain K. Inversión internacional en inmuebles comerciales en metrópolis mundiales: la producción del espacio financiero y el riesgo sistémico, Regional Studies. En este artículo analizamos las relaciones entre la propiedad inmobiliaria comercial del Reino Unido y el desarrollo económico regional como base para el análisis del papel de la inversión inmobiliaria en el desarrollo económico local. Documentamos los vínculos entre el crecimiento económico, el desarrollo, el desempeño de la propiedad inmobiliaria y las asignaciones de inversión. El desempeño de la propiedad regional a largo plazo no es el producto del crecimiento económico a la larga y está débilmente relacionado con los indicadores de la oferta y la demanda a largo plazo. Los cambios en las ponderaciones de la cartera regional no parecen que sean consecuencia del rendimiento del mercado ni de los fundamentos subyacentes. A corto plazo, los cambios de la inversión regional no muestran ventajas ni retrasos con el rendimiento del mercado.Keywords: Office marketsInternational financial centresFinancial crisisSystemic riskDiversificationKeywords办公室市场国际金融中心金融危机系统性风险多样化KeywordsMarché des immeubles de bureauxCentres financiers internationauxChoc financierRisque systémiqueDiversificationKeywordsGewerbliche ImmobilienmärkteInternationale FinanzzentrenFinanzkriseSystemisches RisikoDiversifizierungKeywordsMercados de oficinasCentros financieros internacionalesCrisis financieraRiesgo sistémicoDiversificaciónJEL classifications: F02G01R12R14 AcknowledgementsThe authors gratefully acknowledge provision of data by CBRE, Globalization and World Cities (GaWC) and Real Capital Analytics (RCA). Interpretations are those of the authors alone. Earlier versions of this paper were presented at the American Real Estate Society annual meeting, at the European Real Estate Society conference, and at a seminar for the ESPON-TIGER Project. The authors would like to thank participants for their helpful comments. In particular, they thank the Editors of this Regional Studies special issue and the anonymous referees for their comments and suggestions, which have greatly strengthened the paper. As ever, the authors are indebted to the contributions of their colleagues at Cambridge and Reading.Notes1. For further information on the index and for details of the many publications based on the GaWC analyses, see http://www.lboro.ac.uk/gawc/. For a discussion of the 2008 results, see Taylor et al. (Citation2011); and for analysis of change in the world city network, see Derudder et al. (Citation2010).2. The authors are, of course, aware of critiques of Sassen's world city hypothesis, its Western, transatlantic bias, and its emphasis on finance and APS (for example, Amin and Graham, Citation1997; Hill and Kim, Citation2000; Waley, Citation2007; Massey, Citation2007). Nonetheless, it has been important in shaping public understanding of the role and interlinkage of global cities and is relevant to the present emphasis on global financial centres.3. It should be noted that the survey was originally commissioned by the Corporation of London and Z/Yen, both of whom are based in London. Nonetheless, most other global financial rankings also place London first.4. The authors gratefully acknowledge access to these data provided by the GaWC research team.5. A middle office in a financial services firm manages positions, controls transactions and operations, and stands between the front, trading office and the back office performing more routine administrative functions.6. As discussed by Lizieri (Citation2009), p. 44 (see also De Winne and D'Hondt, 2007; Carrie, Citation2008).7. Although one should not neglect investment in buildings and infrastructure in colonial expansion, notably in the nineteenth century (for example, Obstfeld and Taylor, Citation2004).8. The European Association for Investors in Non-Listed Real Estate Funds.9. The variables used in the analysis were each city's score on the Global Financial Centres Index 8 (Z/Yen, 2010); the Globalization and World Cities general network connectivity and financial network connectivity scores for 2008 (sourced from GaWC with permission), metro population, GDP in 2005, per capita GDP – all drawn from the data on the City Mayors website (http://www.citymayors.com), and a series of dummy variables to identify capital cities and cities located in particular geographic regions.10. The authors have excluded from consideration tax haven financial centres ranked in the GFCI which are, in terms of physical space, relatively small: the Channel Islands, Hamilton, Bermuda and the Cayman Islands, for example. While these have an importance for tax and regulatory purposes, in many instances they represent 'virtual' head offices with the true management of financial and real assets occurring in the larger financial centres.11. It is recognized that financial services (and linked APS) do not completely dominate the aggregate office markets of major cities such as London or Paris. In London, for example, the West End represents a significant cluster of headquarters space that is not directly linked to global financial activity – although it does contain substantial numbers of banks, asset management firms and hedge funds. Nonetheless, in many IFCs the financial space is the highest value space, has a significant leading influence on rents and yields in other segments, and dominates international investment activity.12. To some extent, this might reflect under-reporting, although RCA have local information collection agents in the major Asian markets.13. This should not be a major issue in the markets analysed here, which are typically larger and more active cities, hence the presence of a CBRE office and regular market reporting.14. t = 1.44, p = 0.0796.15. t = 1.82, p = 0.0399.16. As before, the GaWC score is used as a proxy for financial status rather than GFCI, since many cities have no GFCI score. The boundary score is approximately the mean score of the cities in the analysis. The results from grouping cities based on their presence or otherwise in the GFCI produce similar, if less robust, results.17. To optimize the length of the series and the number of cities included with full rent and yield data, the series runs from 1993 to 2010.18. t = 3.14, probability (t = 0) = 0.002.19. t = 2.249, probability (t = 0) = 0.017.