Regional And Urban Economies And Commercial Real Estate In The Uk: Exploring The Linkages

The paper will explore the relationship between UK commercial real estate and the patterns of economic development in the United Kingdom over the last thirty years. Commercial real estate ñ office, retail and industrial property ñ plays a significant role in economic development and regeneration and forms a significant component of the built environment. At the same time, it is an investment class, represented in the mixed asset portfolios of institutional funds and private investors; investors who are increasingly global in nature. It also acts as collateral for much business lending and capital investment. The paper will trace out the competing theoretical models of the relationship between real estate investment and economic activity and subject them to empirical testing. An initial empirical exercise will describe the spatial distribution of the stock of institutional and non-institutional investment real estate in the UK. The distribution of stock will be compared to the distribution of economic activity to see if there are mismatches between current provision of space and space requirements as proxied by regional and urban employment and output statistics. Next, the relationship between economic growth and commercial real estate performance will be explored over the period 1980-2009. First, local-level real estate returns will be related to local economic performance. A wider question relates to investment patterns, property performance and economic development. Does investment follow strong economic performance and/or strong real estate performance? Does real estate investment activity influence economic performance? Changes in regional/urban investment allocations and net investment flows will be related to property returns, property volatility and to economic performance statistics, using quantitative techniques (for example Granger causality and, subject to data constraints, cointegration and error correction frameworks) to explore the dynamics of the relationships between economic and property variables. While primarily empirical in nature, the paper will provide a foundation for an informed discussion of the role of the supply of, and investment in, commercial real estate in local economic development.