This research study aims for finding whether or not the real estate business of investing for office is a profitable business. Ling and Archer (2017) stated that in recent times, due to the development of many entrepreneurs, the demand of the office space has been increased as a result the investors, who already invested for commercial buildings are in a profitable position.
- To find out the pros and cons of real estate business in London
- To determine why people invest in real estate investments for office in London
- To assess the profitability of real estate investments for office in London
- Is real estate investments for office is a profitable business?
- Why do people invest in real estate investments for office?
- What are the pros of real estate business?
- What are the cons of real estate business?
Overview of real estate business
Chaney, Sraer and Thesmar (2012, pp.2381-2409) depicted that real estate is referred to as property, buildings and lands and the people, who owned them have underground rights below the land. There are mainly four categories of real estate business- residential real estate, commercial real estate, industrial real estate and empty lands.
Residential real estate
Jin, Leung and Zeng (2012, pp.167-195.) stated that new construction buildings and home for resale are considered as residential real estate. These are the homes for single and family residents and can be in the form of duplexes, triple-deckers, quadplexes and townhouses.
Commercial real estate
On the other hand, commercial real estate commercial real estate resembles strip malls, shopping hubs, hotels, offices, educational and medical buildings (Crowe et al. 2013, pp.300-319). In some case, the concept of apartment is also considered as commercial buildings though they are used for the residential purpose.
Industrial real estate
The manufacturing units and property including inventories and warehouses are considered as industrial real estate (Lieser and Groh 2014). Haynes, Nunnington and Eccles (2017) furthermore stated that industrial building are not only considered for storage and distribution of goods but also used for research production.
Lastly, some lands remained empty without any infrastructure on them or are underdeveloped area. Hines (2017) thus stated that such case, the businesspeople, who have invested in those lands and sell them to other businesspeople.
Demand of office space in London
The report from real estate firm CBRE, it has been found that Demand for office space will be rise up 76% every year (CityAM 2018). The report has been published in May, 208 and the firm stated that office spaces in Central London rose by 3% compared to the April, 2018 (CityAM 2018). The users and purchasers are looking for the high-quality office space and that it was estimated that 2018 is a profitable year for City office take-up.
Hines (2017) also stated that the condition occurred due to Brexit resulted in robust demand in the capital city of London. The main reason for this robustness is growing economy and workforce, which leads to the high demand of the office spaces. According to the February, 2018 result, in the last five years, a huge percentage of the office space is purchased by TMT firms (Hof and Blazquez-Salom 2013). The demand of the office spaces especially in the Central London is mainly for the Head Quarters. Knight Frank, a property consultancy in London in the last few years, the biotech industry and media and telecommunication had grown to such an extent that there might me risk of shortage of supply of office spaces in the coming years (Financial Times 2018). It has been also found that compared to the year 2016, in the year 2017, there had been an extra 2 million sq ft office space leased (Financial Times 2018). This resulted in the rise of 13.8 million sq ft sale in the year 2017 compared to the previous year.
Reason for rise in demand of office spaces in London
Rise in start-ups
According to the report of 2017, total of nearly 660,000 companies were get established in London in the year 2016 which was 608,000 in 2015 (Financial Times 2018). UK had also initiated a business-led campaign “StartUp Britain” in the year 2011 which introduces tax breaks for owners and investors of small businesses. This result in rise in 2 million businesses compared to the year 2000 in London (Financial Times 2018).
Image: Rise in UK business
(Source: BIS, Business Population Estimates, 2018)
The report also shows that there were 1069 businesspeople in 10,000 residents in the year 2017 in UK, which is 1519 among 10,000 residents in case of London (BIS, Business Population Estimates, 2018). In South East region also there are more than 1200 businesspeople per 10,000 residents (BIS, Business Population Estimates, 2018). Thus, the number of businesspeople high in the London and thus the real estate business for office is a profitable business.
Image: Businesses by region
(Source: BIS, Business Population Estimates, 2018)
London is an international city with an effective mix of cultures and nationalities. It also provide many opportunity to all the businesspeople and this is the reason that migration of young European workers occurred in a greater percentage (Telegraph 2018). This is the reason that in recent times, there are 4,000 and 900 medium-sized businesses and large businesses respectively (Telegraph 2018). Due to the fact that London is the international city, in the year 2016, the total number of headquarters present in London reached 1 million (Telegraph 2018).
Neuman (2013) stated that deductive and inductive are two type of research approaches in which deductive approach refers to addressing the research questions based on the identified theories and concept related to the research topic. On the other hand, when new direction is identified based on the research topic, inductive approach is followed.
In this research the answer for whether or not the real estate business in London is profitable will be answered and hence, the finding from the data from literature review and data analysis will be considered. Thus, deductive research approach will be appropriate for this research.
Data collection method
Primary data collection and secondary data collection method are the two different types of data collection method used in a study (Mackey and Gass 2015). Smith (2015) highlighted that when data are collected from the research respondents, it is known as primary data collection method and the data are gathered through survey, questionnaire and interview. On the other hand, when data are gathered through sources like newspapers articles, statistics published in government and company’s website and research papers.
In this research study, both the primary and secondary data collection will be followed in order to collect data for the research. The primary data will be gathered from the investors in London through interviews. These investors should have to be associated with the real estate business for offices. The prime reason for the selecting them for the interview because these investors can clearly state whether or they are in a profitable position by investing in the office real estate. On the other hand, government statistics will be considered for finding the growth in entrepreneurs, business and demand for office spaces. This secondary data collection will provide data for demand of the offices which can be used for addressing the research objectives.
Levy and Lemeshow (2013) stated that, there are two different categories for the sampling technique used in a research study- probability and non-probability sampling technique. Sekaran and Bougie (2016) stated that in non-probability sampling technique, not all the respondents or the samples get the equal chances for participating in the study; while, in the probability sampling technique, all the participants get thee equal chance for giving their perception for the research questions
In this research study, the non-probability sampling technique is utilized. The reason is that only those real estate investors will be selected, who are associated with the investment for offices. In case of the secondary data collection, the non-probability sampling is used as only those articles and research papers are selected that are based on commercial real estate business or investments.
Bryman and Bell (2015) stated that the total number of participants or the research respondents participated in the research is known as sample size. In case of investors for the interview method, 15 of them are selected. These investors are asked question about the change in demand of office spaces they have witnessed over the years and the change on price that they have attained throughout so many years. Research question regarding the whether they are in a profitable position and the strategies they are taking for attaining more profit will also be asked.
In this research, all the 15 research respondents are provided with consent form in which it will be mentioned that the interview process will not taken more than 30 minutes. The data collected from them will be kept anonymous and protected under the legislation Data Protection Act 1998. The research result will be shared with them once the research outcome will be obtained.
Bryman, A. and Bell, E., 2015. Business research methods. Oxford University Press, USA.
Chaney, T., Sraer, D. and Thesmar, D., 2012. The collateral channel: How real estate shocks affect corporate investment. American Economic Review, 102(6), pp.2381-2409.
CityAM., 2018. Demand for office space in London is up 76 per cent on last year. [online] Available at: https://www.cityam.com/282282/demand-office-space-london-up-76-per-cent-last-year [Accessed 19 May 2018].
Crowe, C., Dell’Ariccia, G., Igan, D. and Rabanal, P., 2013. How to deal with real estate booms: Lessons from country experiences. Journal of Financial Stability, 9(3), pp.300-319.
Financial Times., 2018. Number of UK start-ups rises to new record. [online] Available at: https://www.ft.com/content/cb56d86c-88d6-11e7-afd2-74b8ecd34d3b [Accessed 19 May 2018].
Haynes, B., Nunnington, N. and Eccles, T., 2017. Corporate real estate asset management: Strategy and Implementation. Taylor & Francis.
Hines, M.A., 2017. International real estate investment. Edward Elgar Publishing.
Hof, A. and Blázquez-Salom, M., 2013. The linkages between real estate tourism and urban sprawl in Majorca (Balearic Islands, Spain). Land, 2(2), pp.252-277.
Jin, Y., Leung, C.K. and Zeng, Z., 2012. Real estate, the external finance premium and business investment: A quantitative dynamic general equilibrium analysis. Real Estate Economics, 40(1), pp.167-195.
Levy, P.S. and Lemeshow, S., 2013. Sampling of populations: methods and applications. John Wiley & Sons.
Lieser, K. and Groh, A.P., 2014. The determinants of international commercial real estate investment. The Journal of Real Estate Finance and Economics, 48(4), pp.611-659.
Ling, D.C. and Archer, W.R., 2017. Real estate principles: a value approach. McGraw-Hill Education.
Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.
Neuman, W.L., 2013. Social research methods: Qualitative and quantitative approaches. Pearson education.
Sekaran, U. and Bougie, R., 2016. Research methods for business: A skill building approach. John Wiley & Sons.
Smith, J.A. ed., 2015. Qualitative psychology: A practical guide to research methods. Sage.
Telegraph. 2018. The number of businesses in the UK hits a record high. [online] Available at: https://www.telegraph.co.uk/business/2016/10/13/the-number-of-businesses-in-the-uk-has-hit-a-record-55m-up-almos/ [Accessed 19 May 2018].