Development and Developers: perspectives on property
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Development and Developers: perspectives on property Edited by Simon Guy Reader in Urban Development School of Architecture, Planning & Landscape University of Newcastle John Henneberry Professor and Head of Department Department of Town & Regional Planning University of Sheffield
Development and Developers: perspectives on property Edited by Simon Guy Reader in Urban Development School of Architecture, Planning & Landscape University of Newcastle John Henneberry Professor and Head of Department Department of Town & Regional Planning University of Sheffield
# 2002 by Blackwell Science Ltd, First published 2002 by Blackwell Science Ltd
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system, or transmitted, in any form or by any
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as permitted by the UK Copyright, Designs
and Patents Act 1988, without the prior
permission of the publisher.Real Estate Issues Series Managing Editors Gerald Brown Department of Building & Real Estate, National University of Singapore Stephen Brown RICS Foundation John Henneberry Department of Town & Regional Planning, University of Sheffield Real Estate Issues is a book series presenting the latest thinking into how real estate markets operate. It will be inclusive in nature, drawing both upon established techniques for real estate market analysis and on those from other academic disciplines. It embraces a comparative approach, allowing best practice to be put forward and tested for its applicability and relevance to the understanding of new situations. It will not impose solu- tions, but will provide a means by which solutions can be found. Real Estate Issues will not make any presumptions as to the importance of real estate markets, but will seek to present the real significance of the operation of these markets. Books in this series Guy & Hennebery Development and Developers Couch, Fraser & Percy Urban Regeneration in Europe Adams & Watkins Greenfields, Brownfields and Housing Development O'Sullivan & Gibb Housing Economics Stephens Housing Finance and Owner-occupation Brown & Jaffe Real Estate Investment Seabrooke & How International Real Estate Allen & Barlow Housing in Southern Europe
Contents
Preface vii
Contributors ix
1 Approaching development 1
Simon Guy and John Henneberry
2 The market context of property development activity 19
EÂamonn D'Arcy and Geoffrey Keogh
3 Modelling the development sector of the property market 35
Tony McGough and Sotiris Tsolacos
4 Market research for office real estate 53
Richard Barkham
5 The financial appraisal of development projects 73
Stuart Morley
6 Developers' decisions and property market behaviour 96
John Henneberry and Steven Rowley
7 The organisation of property development professions
and practices 115
Michael Ball
8 The impact of land management and development strategies
on urban redevelopment prospects 137
David Adams, Alan Disberry, Norman Hutchison
and Thomas Munjoma
9 Developers in local property markets: assessing the
implications of developer experiences and attitudes in the
re-use of vacant industrial buildings in an old industrial area 158
Rick Ball
10 Systems theory and the commercial development
process ± towards an understanding of complex behaviour
and change 181
Edward Trevillionvi Contents
11 Evolution in the supply of commercial real estate: the
emergence of a new relationship between suppliers and
occupiers of real estate 204
Rob Harris
12 Global players and the re-shaping of local property markets:
global pressures and local reactions 224
Claudio De MagalhaÄes
13 Developing interests: environmental innovation and the social
organisation of the property business 247
Simon Guy
14 Property companies and the remaking of markets:
stories from the 1990s 267
Michael Pryke and Paul du Gay
15 Conclusions: interpreting development 285
Simon Guy and John Henneberry
Index 303Preface This book has its origins in a Royal Institution of Chartered Surveyors (RICS) conference, the Cutting Edge, at City University in 1994. In one of the sessions Simon Guy offered the audience of property analysts a rather atypical, sociological treatment of the development process, drawing on a recent Economic and Social Research Council (ESRC) project exploring links between environmental innovation and the property industry1. The session rapporteur, John Henneberry, then led a spirited debate informed by both critical and analytical openness. While no firm conclusions were reached that day, what did become clear was both the receptivity to new ideas on the part of the property research community and the evident potential for cross-disciplinary perspectives on the development process. The session provided a springboard to a research collaboration between Guy (a sociologist) and Henneberry (an applied economist), principally through an exploration of the role of property in urban development funded through the ESRC Cities Programme2. The work benefited greatly from an inter- disciplinary approach to understanding development and developers. In 1998, at the same RICS conference at De Montfort University, we organised a special session on development and developers with the aim of exploring different methodological and theoretical approaches to the sub- ject. Much to our pleasure and surprise the room was packed and a very lively, pluralistic debate ensued. This persuaded us that there was con- siderable interest not just in property development but also in alternative ways of understanding it. The possibility of an edited collection was moo- ted. It was supported by several of those presenting papers in the session and the results are to be found in this book. Our aims for the book were always quite simple. The first was to demon- strate the heterogeneous nature of research on development and devel- opers. The second was to highlight the inter-relationships between particular methodological standpoints and the way in which they illumi- nate particular facets of the property business. The third was to argue for a more inclusive, interdisciplinary approach to property research which connects to wider debates within urban studies. We have tried to gather together a set of contributions which are representative of contemporary research approaches in this field. As we admit in our conclusions, we have not been totally successful in this aim. Nor could we have been, given the growing interest in the property sector from an increasing range of dis- ciplines. We (the editors) would argue that this is something to embrace and celebrate.
viii Preface
Our final conclusion may be taken as a rather provocative declaration of
ambition for property research: it is that if we approach developers and
development from many perspectives, equipped with the theories and
methodologies of many disciplines, we will take a challenging analytical
path. Our understanding of the development process will be constantly
enriched by the interplay of these perspectives. They will inform the gen-
eration of a critical vision of property development and property markets
and of their role in shaping and underpinning contemporary societies. Such
a research pathway would place property studies where it should be ± at the
centre of urban and regional debates. We hope this book will make a useful
contribution to this research agenda.
Simon Guy, University of Newcastle
John Henneberry, University of Sheffield
January 2002
Notes
1 ESRC Award No. L320253207: Developing alternatives: environmental innova-
tion and the property business.
2 ESRC Award No. L130251034: Economic structures, urban responses: framing
and negotiating urban property development.Contributors David Adams is Professor and Head of the Department of Land Economy at the University of Aberdeen. His research interests are in land and property development, urban policy and regeneration and the operation of the planning system. He has undertaken research for the Economic and Social Research Council on land ownership constraints to urban re- development, the market availability of industrial land, access to decision-makers in local planning, and landowner involvement in the local planning process. Michael Ball is Professor of Urban Economics in the Faculty of the Built Environment at South Bank University, London. Recent publications include The Economics of Commercial Property (with Colin Lizieri and Bryan MacGregor); An Economic History of London, 1800±1914; and The Review of European Housing Markets published annually by the R.I.C.S. Rick Ball is Professor of Local Economic Development, and Director of the Centre for Economic and Social Regeneration, at Staffordshire University. He has a BSc degree in Applied Geography and Economics (Ulster), an MA in Regional Economics and Planning (Lancaster), and a PhD in Urban and Regional Studies (Birmingham). He is an MIED ± Member of the Institution of Economic Development, and Trustee of the Institution of Economic Development Educational Trust. He has wide experience of research, con- sultancy, and advanced training and learning work in local economic regeneration, tourism economic development, industrial buildings, and urban and regional policy issues. Richard Barkham (PhD Economics) is Research Director of Grosvenor Ltd. He was formerly Head of Projects and Consultancy in the research department of CB Hillier Parker, and has held academic posts at the University of Reading, 1995±1998, and the University of Cincinnati, 1997. Richard Barkham's academic output includes articles on entrepreneurship and small firm development, the role of small firms in regional develop- ment, property company performance, property market efficiency (housing markets and commercial property markets) and the investment character- istics of UK commercial property. EÂamonn D'Arcy is a real estate and urban economist based at the Centre for Spatial and Real Estate Economics at The University of Reading and is currently Executive Director of the European Real Estate Society. His principal research interests include real estate economics, institutional approaches to the analysis of commercial real estate markets, new forms of
x Contributors sub-national competition, property markets and urban competitiveness, and the dynamics of globalisation, product innovation and change in real estate service markets. He is on the editorial board of the Journal of Property Investment and Finance. Alan Disberry is Development Officer with Sheffield City Council and was previously Research Fellow in the Department of Land Economy at the University of Aberdeen. He is a qualified planner with professional experience in local economic development. Paul Du Gay is a senior lecturer in Sociology and Sub-Dean (Research) in the Faculty of Social Sciences at the Open University. His research is located in the sociology of organisational life. His authored and edited publications include Consumption and Identity at Work (Sage, 1997), Production of Cultures/Cultures of Production (Sage, 1997), In Praise of Bureaucracy: Weber, Organization, Ethics (Sage, 2001) and Cultural Turns: Cultural Analysis and Economic Life (Sage, 2001). Simon Guy is Reader in Urban Development in the School of Architecture, Planning and Landscape at the University of Newcastle. He has undertaken research into a wide spectrum of urban design and development issues funded by the UK's Economic and Social Research Council, Engineering and Physical Science Research Council, and the European Union. Recent publications include Guy, S. and Shove, E. A Sociology of Energy, Buildings and the Environment: Constructing Knowledge, Designing Practice, (Routledge, 2000) and Guy, S., Marvin, S. and Moss, T. Urban Infrastructure in Transition: Networks, Buildings, Plans (Earthscan, 2001). Rob Harris is a director of ISGC, a specialist occupancy consultancy, and a Board Director of Nacore UK. The company is part of the ISG Group, which offers construction and property and facilities management services. Rob has spent 17 years in the real estate industry, specialising in research and consultancy, advising clients on their occupancy and development issues. Rob has worked for a large number of corporate occupiers, including Con- oco, KPMG, Liverpool Victoria, Metropolitan Police, Midland Bank and Unilever. Rob publishes and lectures widely, specialising in demand research and the role of real estate in corporate planning. John Henneberry is Professor and Head of Department of Town and Regional Planning at the University of Sheffield. His research interests are in the structure and behaviour of the property market and its relationship with the wider economy and the state regulatory system. His research has been funded by the ESRC (most recently through its Cities: Competitive- ness and Cohesion Research Programme), EC, DTLR, RICS Education Trust, and central and local government agencies. He is on the editorial
Contributors xi board of the Journal of Property Research and is co-editor of the Blackwell/ RICS book series Real Estate Issues. Norman Hutchison is a Senior Lecturer in the Department of Land Econ- omy, University of Aberdeen where he is also Director of the Centre for Property Research. His main research interests are in commercial property valuation and property development. Recent research projects have focused on the valuation of urban regeneration land, land ownership constraints to urban redevelopment, the calculation of investment worth and the valua- tion of utility wayleaves. Geoffrey Keogh is Reader in Land Economy at the University of Aberdeen. He has previously held academic appointments at Sheffield Hallam Uni- versity, University of Reading, University of Warwick, Oberlin College and Universitat AutoÁnoma de Barcelona. His main research interests lie in the economics of land and real estate markets and the economics of town planning. Recent work has focused on the application of institutional eco- nomics to real estate and planning, on real estate and urban economic growth, and on the dynamics of change in real estate services. He is on the editorial boards of the Journal of Property Research and Journal of Property Investment and Finance. Claudio de MagalhaÄes (MSc, PhD) is lecturer in Urban Management and Town Planning at the Bartlett School of Planning, University College London. His main research interests are urban planning systems, property development processes and urban policy. He has conducted research on institutionalist approaches to property markets and globalisation, on issues of capacity building for urban governance, the relationship between urban governance, the built environment and property markets, and the rela- tionship between urban design, planning and markets. His research has been sponsored by the ESRC, RICS, CABE and DETR. Tony McGough is senior lecturer in Real Estate Investment and Finance at City University Business School, and was formerly with the Prudential's property research team. His work concentrates on econometrical analysis and its implications in the property market. He has published widely in the quantitative side of this field and lectures widely including, most recently, to the American Real Estate Society International Conference, the Euro- pean Real Estate Society Conference, and the American Real Estate and Urban Economics Association. Stuart Morley, a partner and Head of Research at GVA Grimley, undertakes consultancy and publishes his research in the valuation, investment, development and planning areas. Topics in which he has specialised include retail capacity and impact studies, town centre healthcheck studies,
xii Contributors investment and development appraisals, performance analysis, local eco- nomic and demographic studies, floorspace supply and demand studies, rental analysis and forecasts, and discounted cash flow appraisals. He has extensive experience in undertaking demand feasibility studies, forecasting future performance and assessing, quantitatively, the effect of schemes on their surrounding areas. Thomas Munjoma (PhD, MLE, Dip.LE, BSc) is a Lecturer in Scott Suther- land School at the Robert Gordon University, Aberdeen and was previously a Research and Teaching Fellow in the Department of Land Economy at the University of Aberdeen. His areas of research interest include property investment, valuation of redevelopment land and land tenure and reform. He carried out research at doctoral level on property investment and eco- nomic restructuring in Harare, Zimbabwe. Michael Pryke is lecturer in Geography in the Faculty of Social Sciences, at the Open University. He has recently edited Unsettling Cities with John Allen and Doreen Massey, and Cultural Turns: Cultural Analysis and Economic Life (Sage, 2001) with Paul du Gay. Edward Trevillion (BSc, PhD, MRSC, CChem) was at the time of writing a researcher in the Department of Building Engineering and Surveying at Heriot-Watt University in Edinburgh. He has lectured at the university on property investment and finance and on the commercial development process. His main research interests are in the structure and dynamics of the commercial property market and the commercial development process in particular. He is using general systems theory and ideas related to self organisation to examine change in the market. He has recently taken up a full time position with GVA Grimley as a researcher in their Edinburgh office. Sotiris Tsolacos (PhD) Economics, Reading) is UK Forecasting Manager with Jones Lang LaSalle. He was previously a lecturer at the Centre for Spatial and Real Estate Economics, University of Reading. He is currently visiting research fellow in the Centre for Spatial and Real Estate Economics, University of Reading and in the Finance Faculty of City University, as well as being Editorial Board member of the Journal of Property Research and a Board Director of the European Real Estate Society. The editors are also very grateful for the help and support of Christine Goacher and Elizabeth Storey, secretaries in the Department of Town and Regional Planning, University of Sheffield and the School of Architecture, Planning and Landscape, University of Newcastle.
1
Approaching development
Simon Guy and John Henneberry
`. . . different types of model . . . offer different levels of understanding . . .'
(Gore and Nicholson, 1991, p. 728)
or
`it depends on your point of view' (Anon)
Defining the built environment
The built environment is for most people a `taken for granted' aspect of the
world. If I hit my head against a brick wall, it hurts. But only if I make what
for Descartes is a large assumption that my head, the wall and the pain are
not imagined, can the physical existence of the wall be accepted. This
conceptual challenge is an inescapable aspect of any interpretative
encounter with buildings and cities, and in particular any attempt firmly to
define features of built form.
Take size ± measuring a building's dimensions is as much art as science.
How should alcoves, pillars and internal walls be dealt with? Which types
of space should be included in an area? In addressing these questions, sur-
veyors have evolved conventions for measurement which vary sig-
nificantly between different classes of building (RICS, 1993). For industrial
accommodation the focus is on gross internal area; for offices it is on net
internal area; for shops the notion of zoning complicates the latter mea-
sure. The conventions change with the design and use of buildings and the
practice of measurement. In 1989 the RICS Working Party on Measuring
Practice2 Development and Developers: perspectives on property
`. . . did not, on balance, feel that market practice had evolved sufficiently
to make a recommendation on whether B1 buildings should be measured
on a gross internal area (GIA) or a net internal area (NIA) basis.'
(RICS, 1993, p. 1)
By 1993 the Working Party had:
`. . . formed the view that the appropriate method of measurement for
these buildings is NIA. All the same, some suppliers of space may wish to
adopt a different definition.'
(RICS, 1993, p. 2)
Take building type ± we might initially be happy to say that we know a
house when we see one. But if the building is sited on a steep hillside and
presents a single floor with a `front' door to the road on the uphill side and
two floors to the back garden on the downhill side, might it be a bungalow?
And if we were standing in the rear service yard of a building, how con-
fidently could we discriminate, on the physical evidence available to us,
between a retail warehouse, a distribution warehouse and a light industrial
unit? To address such problems taxonomies of buildings have been devel-
oped. They differ according to the body which has constructed them and the
use to which they are put. Construction orders for offices are divided into
`Public Sector Other: Offices' and `Private Commercial: Offices' by the
Department for Transport, Local Government and the Regions (DTLR1,
Periodic) but the Use Classes Order (DoE, 1987) includes public and private
offices in Class B1a, while `use for the provision of financial or professional
services where they are provided principally to visiting members of the
public' is in Class A2. As with measurement, use classifications change
with altered circumstances. Before 1987, offices and light industrial build-
ings were placed in separate use classes (II and III of the 1972 Use Classes
Order). Now, on the basis that their impact in land use terms is similar, they
are both `business' buildings ± a category which itself did not exist until
1987.
Take building location ± while, with global positioning systems, the precise
position of a building can quickly be defined, the character of its location
may be more problematic to pin down. There are no generally accepted
definitions of `town centre', `edge of centre', `out-of-centre' or `out-of-town'.
Yet these terms are of great significance to, say, retail developers2. The
broader distinction between `urban' and `rural' is contested. For example,
quarries are categorised as `urban' in the DTLR Land Use Classification
even though the majority are surrounded by what most people wouldApproaching development 3 consider to be `countryside'. And in the countryside, the distinctions between small market towns, villages, hamlets and scattered settlements are not easy ones to make (Bibby & Shepherd, 1998). If the definition of buildings' physical characteristics is problematic, greater difficulties might be expected in dealing with their more abstract features. Ownership and control of buildings are defined and exercised through the law. The law has a certain physicality ± the documents upon which statutes, court orders and so on are recorded and the police stations, courts, prisons and other structures which house the system. However, the law is articulated predominantly through patterns of social behaviour which accept its existence and acknowledges the rules and procedures it embodies for defining rights and obligations and upholding or enforcing them. There is a dynamic, iterative relationship between society and the law which leads to continual change in what is accepted by the former of the latter and vice versa. However contingent, the legal rights held by a body in relation to a build- ing are usually relatively clearly defined and documented. This does not hold as frequently with the value of those rights. Value is a complex con- cept. The RICS Appraisal and Valuation Manual (the `Red Book'; RICS, 1995) sets out 13 valuation bases3. Each has its method of calculation, involving the exercise of analysis and judgement. Such exercise by differ- ent valuers can result in considerable variation in valuations even when they are conducted simultaneously and on the same basis (witness the continuing debate sparked off by Hager and Lord, 1985). Because of chan- ges in building design and specification, in the character and operation of occupiers and in economic and market circumstances, each valuation has a limited `shelf life'. Quite apart from the abstract nature of many important building char- acteristics, there is another source of conflict in interpretation of the built environment. It is the treatment of evidence relating to buildings. Allowing for the definitional problems above, we have little trouble accepting that buildings we have visited exist. We have seen and touched them. We gen- erally extend that acceptance to buildings we have seen. Although, through some interplay of eyesight, lighting, perspective and distance, we may not be certain that a building on a remote hillside is a farmhouse or a barn, or a rock which looks like a farmhouse or a barn. But our world would be peculiarly circumscribed if we only admitted the existence of that which we could directly sense. So we don't; we accept secondary evidence. But how far do we trust that evidence and how do we interpret it ± or allow others to interpret it for us?
4 Development and Developers: perspectives on property Is a photograph or film of a building proof that the building exists? It may have been demolished since the image was taken. Is the image a reasonable representation of the building or does it hide as much as it reveals? Judge- ment on this may vary according to who recorded the image. Will the hotel room booked for a holiday be in the characterful and attractive historical building pictured in the travel brochure or the TV programme, or in the soulless, characterless (and unrevealed) annexe behind? Aerial photographs aside4, photographs of only a relatively small percentage of the UK building stock will be accessible to us. So we accept other evidence of buildings' existence and character. This is more remote in two ways. First, the evidence has been both gathered and interpreted by others. It now has to be assumed that there is some consistency between the way in which the persons producing the evidence perceive and understand it and the way in which the persons consuming the evidence do so. The second aspect of remoteness relates to the coverage of the evidence. For practical reasons many surveys relate only to a proportion of their subject matter. Those conducting surveys usually go to great lengths to ensure that the sample covered is representative of the subject population as a whole, so that the character of the former can be attributed to the latter for analytical, policy and other purposes. There is a considerable literature on sampling techniques and their application (for example, Barnett, 1991; Fink, 1995). Survey users can draw upon this literature to help to inform the interpretation and reliance they place upon the evidence of the survey. Ultimately, however, it is a matter of individual judgement how such secondary evidence is incorporated into a view of the world. To summarise, built form possesses both physical and abstract attributes relating to size, location, use, legal status, value and so on. Even at the level of an individual building, definition of these attributes is rarely straight- forward. When analysis is expanded to the built environment as a whole, description becomes even more problematic. Any conceptualisation of the built environment must ± because the individual will only have direct access to a small proportion of that environment ± incorporate assumptions based upon indirect evidence. At the extreme, because we all differ in the evidence we will accept and the way that we interpret it, no two views of the built environment will be entirely the same. Explaining property development The interpretative flexibility relating to the built environment becomes more evident when formal, analytical attempts to explain its development
Approaching development 5
are compared. Urban development is a complex process which entails the
orchestration of finance, materials, labour and expertise by many actors
within a wider, social, economic and political environment. The physical
building is the tip of an iceberg with much that is hidden beneath the
surface (see Fig. 1.1)5. Researchers, in seeking to uncover and to understand
these causative processes, make use of theory and related research methods
and techniques to guide their work. Johnston (1997, pp. 33±6) suggests that
three broad approaches to research, which he terms `world views', can be
identified. Each incorporates compatible sets of theory and method.
built environment
empirical outcomes
theory research
abstract processes
mechanisms
structures
Fig. 1.1 Approaches to explanation.
The empirical sciences derive knowledge from direct experience based on
the senses. Facts are accurately observed and reported. For example, infor-
mation may be gathered relating to antisocial behaviour on local authority
housing estates such as vandalism, graffiti and littering; and to aspects of
the design and layout of estates (such as the number of multistorey tower
blocks, the incidence of overhead walkways and the general spatial orga-
nisation of the site (Coleman, 1985)6. Positivism seeks to add explanation
by treating individual occurrences as examples of general laws. For exam-
ple, housing estates exhibiting certain design characteristics (`problem
estates' with multistorey flats, overhead walkways, etc.) also experience
high levels of graffiti, vandalism and littering; so the design and layout of
problem estates are posited to cause antisocial behaviour. Consequently,
the identification of these laws provides both explanation and prediction.
For example, if more such estates are built, then more antisocial behaviour
will occur. By extension and application the possibility of control and
manipulation through policy is introduced. For example, if the construction
of estates to such designs is halted and existing estates are modified to
remove the worst design features, this will reduce social malaise.6 Development and Developers: perspectives on property The hermeneutic sciences do not accept that a distinction can be made between an empirical world and the person observing it. Observation involves perception and interpretation. Meaning is a human construct influenced by biological and social characteristics such as age and gender or religious beliefs and class position. General laws of human behaviour cannot exist because people, each one with a unique biological and social make-up, do not exhibit consistent and continuous responses to identical stimuli. Hermeneutic science offers understanding rather than explanation, a guide to the future rather than prediction, and appreciation of circum- stances rather than their control. Damer's (1974) work illustrates the dif- ference between empirical and hermeneutic sciences. He explored how an estate came to be regarded as problematic by outsiders and by its residents. This required the identification of the meaning of the estate for these two groups. He demonstrated that the residents, households of the lowest social status who had been rehoused from slums, were defined by other more powerful social groups (housing managers and residents in adjacent areas), as problematic. They responded to this label in ways which reinforced the estate's negative image. For Damer, problem estates were primarily the product of class inequality. This is not to say that Damer's analysis of problem estates is more accurate than that of Coleman. Rather, the two approaches produce dramatically different understandings of the same problem, each with its own validity. A bottle dropped from an overhead walkway will hurt you if it hits you, whatever your social class. So it makes sense to reduce, through design, the opportunities for this action to occur. Conversely, if we do not address the social and economic exclusion giving rise to the feelings of frustration which prompted the bottle to be thrown in the first place, then bottles might in future be thrown from windows or roofs rather than walkways. Critical sciences embody elements of both empirical and hermeneutic sciences. People are members of complex societies which have rules to ensure their survival. Different societies arrange themselves in different ways. Under capitalism, goods and services such as buildings are only produced if they can be sold for a profit. Under socialism, collectively determined needs are met through collectively agreed production plans. People have considerable latitude to interpret and respond to social rules without undermining their basic legitimacy. Capitalism requires buildings to be produced at a profit, but does not define which buildings will or will not be profitable. This is determined by individuals and groups and may change over time. Thus, the laws of empirical science are incorporated in the critical science schema but, while broadly describing general behaviour, are subject to considerable variation arising from hermeneutic processes
Approaching development 7
`. . . because the operation of a society depends on how people interpret its
rules' (Johnston, 1997, p. 35). Through this combination, critical science
avoids both the determinism of positivism ± that people's actions are only
the product of the laws and structures set over them ± and the voluntarism
of hermeneutics ± that people are free agents with complete control over
their own lives. Indeed, critical science embodies a dialectic between
structure and agency.
As Johnston (1997, p. 240) explains, social systems provide contexts within
which individuals become `knowledgeable actors' ± that is, they interpret
their position within a social system and develop actions consistent with it.
The system is, therefore, both enabling and constraining. It enables through
the provision of resources, such as knowledge, on which to base actions. It
constrains because it limits through social rules which actions can be
taken. Individuals, as they act, reproduce knowledge, ensuring that the
social system continues to constrain and enable further actions. But indi-
viduals' decisions and actions change knowledge somewhat, altering the
extant set of enabling and constraining conditions for the future. Conse-
quently, if a sufficient number of individuals decide to change their inter-
pretation of and response to social rules, they can transform society to a
lesser degree (for example by deciding that a larger or smaller proportion of
houses will be produced unprofitably ± social or affordable housing) or
greater degree (for example by abandoning socialism for capitalism).
`Any . . . discipline may . . . incorporate competition over the relative
merits of each approach, as well as competition within each as to the
proper way for that particular form of science to be practised . . .'
(Johnston, 1997, p. 36)
This competition encourages development of new ways to understand the
world and new research methodologies, methods and techniques with
which to explore it. Cloke et al. (1991) chronicle evolving theoretical
debates in human geography. Starting in the late nineteenth and early
twentieth centuries with environmental determinism and the regional
concept, much effort was devoted to the identification and description of
particular regions and the human±environment relationship which existed
there. This tradition was increasingly challenged by the quantitative
revolution and the development of spatial science in the 1950s and the
1960s. Spatial science and its positivist underpinnings were criticised in
their turn by adherents to both the broadly Marxist and the humanist
approaches to human geography which developed rapidly in the 1970s and
the 1980s. Their eventually sophisticated treatment of the inter-8 Development and Developers: perspectives on property connectedness of structure and agency were the point of engagement with structuration and realism ± alternative approaches to the structure±agency debates ± which developed in the 1980s. Subsequently geography has increasingly adopted a post-modernist critical position which celebrates difference and disavows grand theory ± the assumption that there is a degree of order in the world. Theoretical evolution in economics took place over a much longer time- scale and exhibited different rhythms (Barber, 1967). The classical economics of Smith, Malthus, Ricardo and Mill developed from the late eighteenth century to the mid nineteenth century. It focused on the process of economic growth over long time periods, paying special attention to the interaction between the distribution of income and changes in total output. From the mid nineteenth century Marxian economics reoriented classical theoretical categories by advancing the perspective that economic reality and society at large were inseparable. The preoccupation with long period change and the distribution of income between social classes was aban- doned by neoclassicists who, from the late nineteenth century, focused on the process through which an economy's resources are allocated by a market system. The twentieth century saw the rise of Keynesian economics which addressed the central issue of the determination of levels of national income and employment and the cause of economic fluctuations. All these schools of economic thought are broadly structuralist in stance and, Marxism apart, adopt an empirical science `world view'. Excepting the early criticisms of Veblen and the later ones of Galbraith, other competing approaches have been late to assert themselves in economics. In 1980, Blaug (1980/1992), in his history of economic methodology, devoted little over one page to institutionalism and dismissed it as `story-telling' (p. 110). However, institutional economics developed rapidly as a sub-discipline of the subject in that decade (Hodgson, 1988). By the late 1990s, Backhouse was arguing `the case that hermeneutic, rhetorical and post-modern analysis have important points to make . . . economics should use a variety of tools, no single one being suitable for all problems' (Backhouse, 1998, p. 5), and Lawson was striving `to bring reality . . . back into economics' (Lawson, 1997, p. xii). Property in general and property development in particular have drawn heavily on the research approaches of related disciplines. Methodologies, theories, methods and techniques from economics, geography, planning, sociology and politics have been utilised by property researchers. They have supported and enriched the development of an increasingly substantial body of work. Surveys of the research landscape of property development have been conducted by Gore and Nicholson (1991), Healey (1991) and Ball
Approaching development 9 (1998). They identify four broad perspectives of property and the develop- ment process. . Event-sequence models (Healey, 1991), otherwise sequential or descriptive approaches (Gore & Nicholson, 1991) depict the develop- ment process as a series of stages during which certain events occur. They derive from an estate management preoccupation with managing development projects. . Agency models (Healey, 1991), alternatively called behavioural or decision-making approaches (Gore & Nicholson, 1991), emphasise the roles, behaviour and decisions of different actors, their interrelationships and the impact they have on development. They were developed by academics pursuing behavioural or institutional analyses of the devel- opment process. . Production-based approaches (Gore & Nicholson, 1991) or structure models (Healey, 1991) treat property development as a particular form of economic production. They tend to be macroeconomic in flavour (Gore & Nicholson, 1991) and to focus on the forces which organise the rela- tionships of the development process and drive its dynamics (Healey, 1991). Mainstream economics and urban political economy models fall into this category7. . Institutional models (Ball, 1998) emphasise the organisations involved in property development and `. . . the practices and networks that influence the ways in which those organisations operate and interrelate' (Ball et al., (1998) p. 108). This category is a broad one which overlaps with the foregoing approaches, incorporating many of their elements. It covers institutional treatments from mainstream economics; considerations of power such as those included in behavioural institutionalism; the structure-agency institutionalism of Healey (1992 and subsequently); and Ball's structures of building provision (Ball, 1981, 1983 and subse- quently). These models or approaches are independent of and cut across theoretical and methodological traditions. As Healey (1991) points out, neo-classical and Marxist insights have illuminated agency (for example Drewett and Ambrose), event-sequence (for example Goodchild and Munton and Boddy) and economic structure models (for example Harvey, J. and Harvey, D.). Similarly, and for example, Ball's (1998) discussion of behavioural institu- tionalism considers the work of Goodchild and Munton, on the one hand, and of Massey and Catalano, on the other. As Gore and Nicholson point out:
10 Development and Developers: perspectives on property
`the models themselves have been devised to assist work in a variety of
contexts and are based on different theoretical underpinnings . . . such
models are essentially different ways of representing the same thing . . .'
(Gore & Nicholson, 1991, p. 705)
This is not to say that there is no competition between different inter-
pretations and explanations of development. Indeed, the major contrasts in
the way the underlying forces of change and the structural relations through
which they operate are conceptualised, offer fertile ground for debate.
Different approaches or `world views'
`. . . have contrasting expectations regarding the generalisability of
research findings and very different views on the generation and ``testing''
of research hypotheses . . . [which] also reveal themselves in the kind of
information collected and in the specific research techniques adopted.'
(Massey & Meegan, 1985, p. 4)
Empirical science is often identified with `extensive' research which relies
on the use of aggregate statistics, surveys and statistical analyses to discover
overall patterns resulting from the operation of general laws. Hermeneutic
science is identified with `intensive' research which depends upon non-
standardised and qualitative analytical techniques to explore in detail how
causal processes work out in specific cases and which emphasises
abstraction. Critical science seeks to combine both approaches, although
some would claim that there are fundamental philosophical barriers to such
an aim.
Lively competition over approaches, theories and methods has been evident
in the property field over the last decade. Luithlen (1992, 1993) offered one
of many assertions of the superiority of Marxism over mainstream eco-
nomics as a framework for interpreting the processes of reproduction of the
built environment. Marxism, through
`. . . the dialectic-historical method . . . links concrete events to abstract
categories to explain these events . . . this is not to say that conventional
analyses are devoid of explanatory power. However, their limitations lie
in the concern with surface phenomena and the fragmented nature of the
underlying models . . .'
(Luithlen, 1993, p. 41)
which omit consideration of class relations. Furthermore, conventional
statistics describe things ± such as rents, yields and prices ± which matchApproaching development 11
the constructs of the dominant theoretical and methodological `world view'
of the subject: mainstream economics. This approach sets up
`. . . hypotheses and then assesses their adequacy with reference to criteria
deriving from the same framework, is caught in its own net, a procedure
which not only implies circular (tautological) reasoning, but is also likely
to lead to false conclusions.'
(Luithlen, 1992, p. 43)
Needham (1994) in a forcefully argued response pointed out that
`. . . it is just not true that ``the assumption of perfect competition
underlies most property analysis'': other forms of market relationship can
be and are analysed.'
(p. 66)
Indeed, in so far as the property market is concerned, mainstream eco-
nomics can explain some things better than a Marxist approach. As
Needham points out, Luithlen admits that this is so with regard to such
things as the extraction of rent, development cycles and the devaluation of
buildings during periods of slump. Needham's main point, however, is that
the substitution of Marxism for mainstream economics
`. . . leaves us worse off than before [because] . . . the translation is from a
language capable of being used with precision (neo-classical economics)
to a language where words refer to vaguely demarcated ideas (p. 65) . . .
The Marxian approach can explain nothing which requires a quantitative
analysis . . . [Luithlen's approach is] . . . at most a complement to neo-
classical theory not a replacement.'
(p. 66)
Compared with theoretical debates, arguments over research methods and
techniques might be more limited in scope but they generate no less
strongly held views. A purposefully provocative critique of property market
forecasting was made by Brown (1994)8. He asserted that the econometric
models upon which forecasts were based are not sensitive to initial condi-
tions, do not accommodate non-linear relationships, do not have adaptive
or evolutionary characteristics and so cannot cope with dynamic systems
such as the property market. He noted that `. . . chaos theory in conjunction
with the building of more traditional econometric models has had some
surprising success in the US . . .' (Brown, 1994, p. 8) and called for UK
practice to consider such an approach.12 Development and Developers: perspectives on property
The suggestion was met with a barrage of criticism. Interestingly, this was
pitched at two levels. At the technical level Barber (1994) commented that
his own extensive work on property markets uncovered no evidence in
favour of chaos, although a small role for cyclical non-linearities was found.
So `linear models do extremely well in predicting the bulk of movements in
the economy and the property market' (p. 52). Consequently, Barber
thought Brown's `. . . article was misguided . . . pure nonsense and . . . [made]
vague appeals to fashionable scientific theories . . .' (p. 52). MacGregor (1994)
supported this view. Considering forecasts he wrote: `. . . to deny their value
is to misunderstand the arguments . . . the case against is, at best, contra-
dictory and, at worst, incomprehensible . . .' (p. 55).
These technical judgements were made within the framework provided by
the empirical science `world view' of research and its tenets were called
upon to support the merits of econometric modelling.
`. . . forecasts are based on the empirically observable and estimable links
between investment markets and the economy.'
(MacGregor, 1994, p. 54)
In contrast:
`Black box science is a term better applied to the intuitive forecaster . . .
modelling the property market from years of very valuable experience of
how the property market works. A forecast produced in this way may be
valid . . . but a client cannot tell anything about the importance of parti-
cular elements within the forecast, the sensitivity of the forecast to
changes in any assumptions or the uncertainties surrounding the
estimates provided.'
(Barber, 1994, p. 53)
Formal forecasting, in making all these matters explicit, `. . . would be better
described by using the analogy of a transparent box' (Barber, 1994, p. 53).
Harris and Cundell (1995) railed against this view. They bemoaned `. . . the
quantification of property research to the exclusion of other, more
descriptive and explanatory, avenues of investigation' (p. 75). They were
concerned, in particular, `. . . at the excessive weight given to multivariate
statistics and econometrics ± so called ``modelling'' ' (p. 75). This, they
suggest, had not led to a better understanding of market dynamics but to
more sophisticated modelling techniques which achieve `. . . little more
than to add technical complexity to the old property habit of lookingApproaching development 13
backwards to look forwards' (p. 76). This is because modelling ignores
contingency ± the particularities of circumstances which initiate and then
mould the character of property booms and busts. `The more that research
becomes associated with purely quantitative, context free, techniques, the
less relevant it will be in the search to match demand with supply' (p. 76).
Lizieri (1995) in his response, notes implicitly that much of Harris and
Cundell's complaint is against the acceptance and status of different kinds
of research in practice rather than about the inherent merits of different
research approaches. He illustrates the impact that quantitative approaches
have had on the debate on valuation and investment appraisal techniques ±
fundamental issues for practice ± before warning against making an artifi-
cial separation between quantitative and qualitative research in property.
`. . . is there not a case for drawing on the varied insights that different
research perspectives supply? Is it not possible to approach a problem
from different directions: empirical, reflexive, supply and investment
oriented or demand focused to produce a deeper knowledge of market
structures?'
(Lizieri, 1995, p. 164)
It is in exactly this spirit that the contributions to this book were assem-
bled. We draw on the perspectives of economists, geographers, planners,
sociologists and property analysts; on the experience of academics and
practitioners; on the results of quantitative and qualitative research
methods; on the notions of structure, agency and their relations; and on
theories ranging from mainstream economics to social constructivism. The
aim is to present a multi-faceted view of property development and property
developers. In this way, the benefits of different research approaches and
methods and the particular insights they give of development can better be
appreciated.
Structure of this book
The starting point is EÂamonn D'Arcy and Geoff Keogh's examination of
property development from an institutional economics perspective (Chap-
ter 2). Using the evolution of the British office property market as an
example, they demonstrate how development actors, through their initia-
tives and responses, are constantly reshaping changing property market
structures. The result is an explicit treatment of `property market process'
as a mediator of economic change.14 Development and Developers: perspectives on property The influence of `institutional factors' is largely unexplained in conven- tional quantitative models of property development. Nevertheless, such models offer a different but powerful and elegant analysis of the operation of the property market. This is illustrated by Tony McGough and Sotiris Tsolacos in Chapter 3. They present the results of an empirical investiga- tion of the factors influencing building output. They indicate that the driving force behind development is the economy, but conclude that such broad-brush analysis needs to be augmented by further research by professional practitioners. Developers act within the broader social and economic structures described above. In Chapters 4 and 5 authors currently in practice describe techniques used by developers to help them to make decisions within this complex, changing operational environment. In Chapter 4 Richard Barkham explores approaches to market research for office real estate. He portrays a structured process of assessment of national economic trends and office sector per- formance linked to local market analysis which seeks to define the inter- action of demand for and supply of office accommodation in quantitative and qualitative terms. Such information forms the basis for the financial appraisal of development projects dealt with by Stuart Morley in Chapter 5. Apart from the mechanics of the residual valuation, he stresses the importance of the appraisal context for the application of the technique: for example, through the choice of input variable values, their subsequent analysis and the interpretation of the results. Chapters 6 to 10 attempt, in very different ways, to examine the inter- relationships between agency and structure: that is, between individual development actors and the wider economic and social processes in which they engage. In Chapter 6, John Henneberry and Steven Rowley adopt a behaviouralist approach and use financial modelling techniques formally to imitate developer behaviour. They demonstrate how, through the formulation of unrealistic profit expectations in the upturn of the devel- opment cycle, developers' actions have contributed to increased volatility in the property market. These much more uncertain conditions affect, in their turn, future development decisions. The creation of a new, large commercial development involves many independent agencies drawn together in a set of contractual relations. In Chapter 7, Michael Ball explores the economic reasons for the existence of this particular institutional structure. Drawing on notions of professional- ism, of trust and cooperation, of transaction costs and of information limits and asymmetry, the conditions under which project teams produce efficient outcomes in development management are considered.
Approaching development 15 David Adams, Alan Disberry, Norman Hutchison and Thomas Munjoma's concern is with owners of brownfield land (Chapter 8). Using a structure and agency approach, the chapter examines how the strategies, interests and actions of brownfield land owners are related to the organisation of economic and political activity and to the prevailing values that frame individual decision-making. Rich empirical material related to 80 potential redevelopment sites in four British cities is used to challenge mythology ± based on partial evidence or anecdote ± about the characteristics and behaviour of a typical brownfield landowner. The processes through which development agents engage with local property markets are further considered in Chapter 9, in which Rick Ball focuses on the complex relationships between developers, industrial property and local regenera- tion in a declining economy. Detailed survey evidence is used to show how developers influence the direction and development of the local property economy through the initiation of activity and the response to opportu- nities. This reveals the particularity and contingency of such relations. In Chapter 10, Edward Trevillion suggests that if we are to develop an analysis that combines a sensitivity to structure and agency in a dynamic way, then we need to adopt a systems approach to the property market ± as commonly applied to topics such as sustainability ± and the associated commercial development process. Illustrating the benefits of this approach through a study of the Edinburgh market, he argues the need for a model that can capture the creative dialogue between new investments, infra- structure and the chain of responses of the development community working within the market. Chapters 11 to 14 attempt to link the perspectives and changing strategies of development actors to the shifting relations of property provision over space and time. In Chapter 11, Rob Harris adopts a historical approach to consider the emergence of a new relationship between the suppliers and occupiers of real estate. He demonstrates how shifts in the balance of power from suppliers to occupiers have precipitated radical restructuring in both the nature of the real estate product and in the organisation and means of its production. Working at a different scale, in Chapter 12 Claudio de MagalhaÄes puts forward a framework for analysing market change based on the `social construct' character of markets. Using the internationalisation strategies of British property consultants as a vehicle, he illustrates how global pressures affect and are affected by the transformation of national market structures and practices. A `local' dimension of the inter- nationalisation process is identified, with the formation of a global market for property linked to the reconfiguration of local processes of property production and use.
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