New frontiers of capital: a geography of commercial real estate finance
The recent development experience of modern economies demonstrates the increasing role and impacts of financial activities on regional and national economic systems, effects which remain largely overlooked by current theory and empirical work. This dissertation contributes to this gap in knowledge by addressing the geographical flow of capital into commercial real estate markets.Three main research questions are addressed: (1) does capital flow freely over space into commercial real estate markets in accordance with neo-classical expectations of market equilibrium or is the flow spatially uneven? (2) how and why have spatial patterns of capital flows changed over time, and (3) what are the implications of these changing spatial on local commercial real estate markets and regional economies? To answer these questions, the dissertation develops a theoretical framework to describe the decisions made by investors in their allocation of funds to particular places. This framework begins with a neo-classical process driven by spatial differences in rates of return on assets. Then, additional components are added which modify this simple process, including barriers and costs of distance, management of risk and uncertainty, organizational characteristics, industry specific factors and norms, path dependence, serendipity, and shocks and long-term structural change. Spatial outcomes are then tested empirically through analysis of investment behaviors by institutional, real estate investment trusts (REITs), and foreign investors in the US over the 1980 to 1996 period. This evidence shows a high degree of spatial differentiation amongst these players in their investment and also demonstrates a dispersal of capital to smaller metropolitan areas. In addition, there is a convergence of capitalization rates across regions. Empirical work in Stockholm Sweden illustrates the dramatic effects of a regulatory barrier on local property markets and the regional and national financial system in addition to the channeled flow of investment, particularly to central London, when these barriers were suddenly removed.The dissertation concludes that structural change and shocks have led to the dispersal of capital across places, yet there is no end to geography, as changes in individual and organizational behavior and increasing financial complexity will never allow a state of spatial equilibrium.
- Geography