External Influences On Property Investment Decisions: The Uk Case

This study aims to explore the influence of external actors on investment decision-making and the potential to subsequently prejudice investment outcomes in the UK office market. Research to date on decision-making processes in real estate has focused on the field of valuation. Work by Diaz (1990a; 1990b), Diaz and Hansz (1997) and Diaz and Wolverton (1998) have shown that valuers fail to follow the procedures in which they have been trained, take short cuts in their decision-making and are influenced various forms of market sentiment. Further to this, valuers have been found to be influenced by external actors such as the client. Levy and Schuck (2005) considered the potential for a client to influences the outcome of a valuation. Their findings indicate that opportunities to exert influence are afforded by the control the client has over the valuation process and that clients with expertise and a high level of knowledge of the property market are able to influence valuers by way of expert and information power. These studies reflect a gradual accumulation of evidence to suggest that valuers may be prone, in certain ways and in certain circumstances, to behave in a manner that is inconsistent with typical prescriptions (Gallimore, 1996). To date, these significant findings about actors in property, their behaviour and the influences on their behaviour have not been applied in any consistent manner to any other fields in property research. There is a limited literature available to describe the process of property investment decision-making. That which does exist portrays the process fundamentally as an exercise in rational analysis, evaluation and choice. Several studies have highlighted the distinct and continuing preference of UK investors for office properties located in the core market, irrespective of their relative performance (Ball, 1998; Key et al., 1998; Rowley and Henneberry, 1999). Despite this evidence and a clear need for further study, to date there has been little research done on the process of decision-making, influences on the process and the potential for bias or outside influences to prejudice this process. In order to gain a deeper understanding the structure and nature of the property market, it is essential to appreciate the nature and characteristics of the underlying processes and influences that drive the market. This paper reports on a series of interviews with property investment managers in the UK property market undertaken in mid-2004. The study has identified three distinct groups who play a significant role in the investment decision-making of property investment managers in the UK. These groups have all been found to exert varying degrees of influence at different stages of the decision-making process and to cause significant deviations from normative models of decision making. Influences of this scope and magnitude have the potential to bias the investment process and subsequently affect investment outcomes.