Diseño de prueba de hipótesis

5.5.1 Characteristics and determinants of demand

The category of commercial building comprises a whole range o f buildings including offices, hotels,

shops and restaurants. Together they accommodate activities o f the service and entertainment

buildings, demand estimation is often complicated by the need to disaggregate them as different

types o f activities have different space requirements. A possible alternative is to identify only the

common factors that affect all types o f commercial buildings and use them to estimate the demand

for commercial buildings as a whole.

Like industrial buildings, demand for commercial buildings is derived demand and similarly, the

acceleration principle applies as well. But demand for commercial buildings is usually derived

directly fi*om demand for services rather than goods, as in the case for industrial buildings. Hence,

the commercial requirement is for buildings o f higher quahty, reflecting the need for improved space

and services provision. In addition, the location of the commercial building is often a critical

consideration in making the decision to invest. Offices, shops and entertainment centres need to be

located near urban centres, a fulcrum for service industry activity. Demand for new commercial

accommodation mainly comes from growing or diversifying existing enterprises requiring additional

space, newly formed companies, firms relocating from elsewhere, and redevelopment o f existing commercial facilities.

Contrary to industrial buildings which are commissioned by the firms who intend to use them, the

majority of commercial buildings are built speculatively by property developers and financial

institutions. Generally, such properties are developed for rent, especially when the developers are

confident o f the future level o f rents. When commercial rents are rising more rapidly than interest

rates, commercial buildings are a favoured investment.

5.5.2 A review of associated economic and social factors

Similar with industrial buildings, demand for commercial buildings is derived demand. However,

it is mainly derived from demand for services rather than manufactured goods, and industrial

buildings are mostly commissioned by firms who intend to use them while commercial buildings are

developed for speculative purpose or for rent. These main differences have generally distinguished

the factors that affect the demand for industrial and commercial buildings.

Hillebrandt (1974) highlighted some differences between the factors that affect the demand for

industrial and commercial buildings. First, the capacity o f an office building or some other types of

building is less rigid than that o f factories. It is usually possible in the short run to squeeze in extra

personnel and equipment by lowering space standards. Hence, demand for commercial buildings

a good public image is more important to the commercial sector than the industrial sector, and

commercial buildings such as hotels and shops may even be dependent on this for its profits.

Therefore, demand for commercial buildings may be influenced, to a greater extent, by quality

requirements than that for industrial buildings. However, she also cited several factors which affect

demand for both categories o f buildings such as the state o f the economy, government policies, the

expectations o f output and profits, and the availability and cost o f financing capital.

Stone (1983), on the other hand, considers the factors that affect demand for commercial and

industrial buildings as similar. He maintains that demand for commercial buildings also depends on

business confidence, the rate of innovation, the change in business activities, and location. However,

he noted that the factors will differ in terms o f the type o f ownership. Factors which influence

demand for owner-occupied properties differ fi-om those which affect demand for properties

developed for letting. Generally, properties are developed for rent when developers are confident o f the adequacy o f future returns fi-om such investments. The higher the expected future level o f

rents, and this expectation rises with business confidence and anticipated inflation, the higher the

level of costs that developers can contemplate meeting. In other words, they would be more prepared to pay for steeper land price or higher cost o f borrowing. Therefore, for these developers, their

demand for new commercial and industrial buildings depends on rising rent expectations, adequate

and cheap credit in relation to rates o f inflation, and favourable taxation. Essentially, these factors

relate to government policy such as rent and credit restrictions, taxation and development control.

In turn, they are also linked to the general economic environment. If these expectations are not

fijlfiUed, development activity, especially in the commercial sector, is likely to be reduced since the

majority of commercial buildings are built for sale or letting.

Government pohcy is also cited by Briscoe (1988) as one o f the central restraints on the market for

commercial buildings. He emphasized the importance o f development control policy such as the

availability o f suitable sites and the granting o f planning permission. As almost all commercial

construction takes place in urban centres, not all proposed commercial developments can expect to

obtain the required planning permission. Some developments may be significantly delayed by the

process of obtaining planning approval. Such delays may be detrimental to the investment as profit

margins will be reduced owing to the loss in rents and the extended period o f capital repayment.

Ofori (1990) also viewed commercial buildings as a popular investment among private developers

buildings are mostly owned by organisations or individuals other than the users. In other words,

such investments are motivated solely by profit, which implies that the cost o f investment has to be low while rental returns have to be high in order to maximise profits. In this highly competitive

rental market, aspects o f a building that help to sell it are important. Obsolescence is rapid as

buildings incorporating features that make users' operations more efficient, occupiers more

comfortable and the buildings themselves more efficient to run, tend to attract tenants. Government

pohcy such as planning controls and regulations are also highlighted as crucial factors which affect

the price o f land. The decision to invest may depend on the cost o f land, which can be high

especially in the city centres. Another important factor cited was foreign capital. This may come

in the form of foreign investments in the commercial sector. Two other economic factors highlighted

were the potential retail trade volumes for shops, and changes in office-oriented employment based

on forecasts o f economic growth or projections o f population growth for offices.

The study by Akintoye and Skitmore (1994) indicated that private sector commercial construction

trends in the UK can be explained by the trends in real interest rate, manufacturing profitability,

GNP and unemployment level. A model was developed based on these factors and was found to

satisfy both theoretical and statistical requirements.

5.5.3 Identification of economic indicators

Several economic and social factors that affect demand for commercial buildings have been

highlighted in the review. Table 5.3 compiles a hst of such economic and social factors together with their corresponding economic indicators.

Table 5.3 Factors and their corresponding economic indicators identified for commercial construction demand

E co n o m ic a n d S o cial F a c to rs E co n o m ic In d ic a to rs

a) S tate of th e econom y a) Real GDP; Unem ploym ent; Leading indicators; and GDP deflators b) C ost of land b) C om m ercial land values

c) Expectations of profits c) B usiness conditions; Retail sa le s; Property rental values; Property price index; and Tourist arrivals

d) Availability of credit d) Money supply; and National savings e) C ost of borrowing e) Interest rate

f) D evelopm ent control f) Planning approvals issued g) Foreign capital g) Foreign investm ent h) Population size h) Population

i) Econom ic growth i) Real GDP; GDP p er head; and Productivity ])C hange in office-oriented em ploym ent I) Em ployment

k) Total co st of developm ent k) Fixed investm ent