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Network Effects and Broadband Connectivity in Office Building

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Abstract

Suntec City (hereafter referred to as Suntec), “Asia’s Vertical Silicon Valley,” is one of the real estate examples where broadband and information & communication technologies (ICT) have been strongly embraced to enhance the competitiveness and marketability of its office space. In a mailed questionnaire survey participated in by 24 major commercial developers who are members of the Read Estate Development Association of Singapore (REDAS), 60% of the sample developer firms experienced strong competition in attracting and retaining lessees against office buildings equipped with ICT and broadband facilities. Sixty-seven percent of those who felt competition from the better-connected buildings indicated that they have plans to upgrade the existing ICT and broadband facilities over the next three years. They expected the upgrading to enhance the marketability of the building (71%) and also be able to attract tenants who are willing to pay a premium for the ICT and broadband services (43%). In the post-upgrading period, the majority of respondent firms felt that ICT and Broadband services would have positive impacts on occupancy rate (58%), rent (46%), and running and maintenance costs of the building (61%). We developed an incremental net present value model, which encapsulates the above factor and a network externality, to estimate the economic gain of investing in ICT and broadband connectivity in the Suntec City Tower One case. Based on our assumptions of the input variables, we found that the differentiating premium associated with the ICT and broadband connectivity was equivalent to 3.86% of the unit rental value. When probabilistic uncertainties were added to selected variables in a simulation process, the ICT and broadband related rental premium increased to 5.27%.

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Bibliographic Info

Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 5 (2002)
Issue (Month): 1 ()
Pages: 146-168

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Handle: RePEc:ire:issued:v:05:n:01:2002:p:146-168

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Postal: Asia Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web page: http://www.asres.org/

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Postal: Asian Real Estate Society, 51 Monroe Street, Plaza E-6, Rockville, MD 20850, USA
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Web: http://www.asres.org/

Related research

Keywords: Information and communication Technology; Broadband Connectivity; Network Externality;

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  1. Virginia A Gibson & Colin M Lizieri, 1999. "New business practices and the corporate property portfolio: how responsive is the UK property market?," Journal of Property Research, Taylor & Francis Journals, vol. 16(3), pages 201-218, January.
  2. Bob Thompson & Michael Hills, 1999. "Wired Up for Extra Value," Journal of Real Estate Research, American Real Estate Society, vol. 17(2), pages 245-255.
  3. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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