Characteristic points of Auckland commercial property cycles

Characteristic points of Auckland commercial property cycles PurposeThe purpose of this paper is to expand our understanding of processes governing commercial property cycles, and to provide tools, which enable identification of property cycles’ turning points’ location.Design/methodology/approachThis paper is divided into three parts. The first looks at the demand-supply dynamics and the location of two characteristic cyclic points, the market bottom and the cycle commencement. In the second part a property relevant formula for entropy is derived, and its relation to the cycle overheated stage and the market peak is studied. In the third part, we discuss still another characteristic point of the cycle, which relates to the stage when developers elect to undertake new projects. This analysis is done by employing the chaos theory, and its relation to the cyclic evolution.FindingsIt is found that some markets cycle, while others fluctuate only. A clear method for distinguishing among these is provided. The bottom of a cycle may overlap or be time separated from the start of a subsequent cycle. Market peaks are characterised by a sharp decrease in financial component to entropy for top quality building grades. A cycling market is characterised by crossing of a distinct vacancy rate during the cycle progression.Practical implicationsThe tools developed in the paper allow for clear characterisation of the market types and their cyclic behaviour. This in turn allows for timely characterisation of the market state and for short time-frame forecasting. The depth of a cycle may be calculated and the subsequent correction level estimated.Originality/valueThe paper utilises cross-field approach by taking methods from both physics and mathematics and applying them to property markets. It breaks new ground both in property research and in applied mathematics by showing how the current frontier in pure mathematics may be applied to property. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Investment & Finance Emerald Publishing

Characteristic points of Auckland commercial property cycles

Journal of Property Investment & Finance, Volume 37 (5): 16 – Aug 5, 2019

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1463-578X
DOI
10.1108/JPIF-04-2019-0053
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to expand our understanding of processes governing commercial property cycles, and to provide tools, which enable identification of property cycles’ turning points’ location.Design/methodology/approachThis paper is divided into three parts. The first looks at the demand-supply dynamics and the location of two characteristic cyclic points, the market bottom and the cycle commencement. In the second part a property relevant formula for entropy is derived, and its relation to the cycle overheated stage and the market peak is studied. In the third part, we discuss still another characteristic point of the cycle, which relates to the stage when developers elect to undertake new projects. This analysis is done by employing the chaos theory, and its relation to the cyclic evolution.FindingsIt is found that some markets cycle, while others fluctuate only. A clear method for distinguishing among these is provided. The bottom of a cycle may overlap or be time separated from the start of a subsequent cycle. Market peaks are characterised by a sharp decrease in financial component to entropy for top quality building grades. A cycling market is characterised by crossing of a distinct vacancy rate during the cycle progression.Practical implicationsThe tools developed in the paper allow for clear characterisation of the market types and their cyclic behaviour. This in turn allows for timely characterisation of the market state and for short time-frame forecasting. The depth of a cycle may be calculated and the subsequent correction level estimated.Originality/valueThe paper utilises cross-field approach by taking methods from both physics and mathematics and applying them to property markets. It breaks new ground both in property research and in applied mathematics by showing how the current frontier in pure mathematics may be applied to property.

Journal

Journal of Property Investment & FinanceEmerald Publishing

Published: Aug 5, 2019

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