Tall Buildings Value Perspectives Salford December 2010 - Professor Ali Parsa


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Tall Buildings Value Perspectives Salford December 2010 - Professor Ali Parsa

  1. 1. Tall Buildings: Introduction value perspectives  Tall buildings in context  Tall buildings project  Methodology  Tall buildings characteristics Ali Parsa  Literature on rental evidence and 9/11 effects Professor in Real Estate School of the Built Environment  Do tall buildings command a premium? University of Salford  Interview findings a.parsa@salford.ac.uk  ConclusionsTall buildings in context Tall buildings in context Recent estimates suggest that that half of the world‟s population now lives in cities, compared with only  Within ten years it is estimated that there will be at least thirty cities with a population of over ten 2% in the year 1800 and 35% in 1970, it is important million, of which twenty two will be in developing to understand what the key factors are that are countries and the majority of these will be in Asia. crucial to the long-term success of any city  These figures suggest that the city of the future will It is anticipated that by 2010, 70-80% of the world‟s have to diversify and change in order to cope with population will be living in cities and urban the increase in population and also urbanisation. conglomerations. In such a scenario the tall building may well become the usual built form, not by choice, but by default (Yeang, 2002)Tall buildings in context Many industrial cities have already begun this process through intense regeneration programmes. The reality is that cities can turn their fortunes around, often with surprising speed if they get the formula right, for example, Dublin, Barcelona and Helsinki in Europe and looking further afield Shanghai and Dubai are also undergoing an urban renaissance 1
  2. 2. Tall buildings in context  The desire to construct tall buildings is not a new phenomenon. One of the earliest literary manifestations of building tall comes from the biblical description of the buildings of the tower of Babel.  This passage in the bible has given its name to that motivation and trend for building to reach ever increasing heights.  This innate desire has become translated into different motivations. For example, Le Corbusier‟s vision of „cities in skies‟ or the developer‟s desire to maximise economic returns from city centre land development - through technological innovation and the invention of the skyscraper (BDP, 1995:110 ) Tall Buildings Project Tall buildings in context  Aim: To undertake a comprehensive study of tall buildings globally focusing on strategic real estate Geddes (1974) suggests there are many reasons for the strategies introduction of tall buildings, which may describe the condition of a society. They include: The basic aspiration of man to build tall, stimulating  Objectives Define iconic architecture – including urban form, cultural engineering and architectural ambition.  icons, „star architects‟ and skyscraper evolution; The redevelopment of towns and cities for varying  Identify tall building characteristics – including construction, reasons, from slum clearance to regeneration, partly building height, green buildings and profitability issues; sociological, political and partly big business.  Examine high rise office markets – including spatial patterns, business cycles, rental levels and occupier/investor perspectives; Economic and financial considerations as assessed at the  Analyse high rise residential perceptions – including tenant time of decision. satisfaction and view premiums; Evaluate the threat of terrorist attack – the impact on cities, The hope of achieving higher densities of population in an  urban form and real estate location. agreeable manner and the conservation of land. Tall Buildings Project: Tall Buildings Project: Methodology Methodology  Combination of qualitative and quantitative Work Package II research approaches comprising 8 work packages  Develop strategic model of what defines an iconic commercial  Work package I architecture office building. comprehensive literature reviews - Bringing together information for WPI and specifically  The identification of factors that input literature from a location/metropolitan distinguish or separate the iconic perspective and from the property side commercial office structure from examining occupier and investor issues other high rise buildings. including performance indicators. 2
  3. 3. Tall Buildings Project: Tall Buildings Project: Methodology Methodology  Work package V Work packages III and IV  Quantify the scale of high rise office buildings in each metro, Inventory of all high rise buildings in the world utilising databases country, continent and globally, on a year by year basis from at and other studies that have done this already (world-wide) and least 1900 if not before. completion of  In this regard, a parallel companion research project will generate First level profile information to include: a great deal of the basic office market inventory information. Through the database of high rise buildings, as described above, name of building, address details, number of storeys from ground  the market share of high rise buildings over time can be level (below ground level would be recorded separately), height, determined. year opened, square footage (sq m), use and architect  Similar analysis undertaken for iconic commercial office structures Second level characteristics which would include the following: over time. From this analysis relative rent rates that high rise ground coverage, FAR, floor plate size, construction type, external buildings may command relative to overall market rates will be finishings, development team, tenancy/ownership, occupier mix, calculated. rental levels, proximity to public transport, numbers working in  In addition how much iconic commercial office structures may building command in rents, relative to overall commercial space will be quantified Tall Buildings Project: Tall Buildings Project: Methodology Methodology  Work package VI  Work Package VII  Based on the reviewed literature a series of  Building from the literature review and other investigations, including interviews with key structured discussion and interviews conducted stakeholders as above stated, strategic models with national and international key market developed of high rise buildings generally and iconic participants and stakeholders to provide a further commercial architecture specifically from the following understanding of the reasons for the perspectives: attractiveness associated with this characteristic i. How metro economic development strategy in its architectural feature (tall building structure). shape and form is stimulated by high rise buildings and  The aim is providing an insight into the high-rise iconic commercial architecture specifically. Do high architectural practice in London and the City of rise buildings make a metropolitan area more or less appealing? New York, the focus of this study ii. Corporate space user tenancy priorities and strategies, in relation to high rise buildings and iconic commercial architecture Tall Buildings project: Tall Building Characteristics: Methodology key research questions  Work package VIII  What is the optimum building height for an office  Project the likely market of future high rise commercial building? office structures on a metro, country, continent and  Does the green building agenda significantly alter the global basis on a year by year basis through 2020 and costings of a tall building? by five-year increments from 2020 through 2100.  How does construction cost vary with building  The objective is to develop probable rents and height? occupancy levels for this type of structure overall.  How do high rise construction techniques differ from  The major focus of the subject of study is to project the traditional low rise? supply of the high rise inventory and iconic commercial  Does building height affect profitability? office building inventory going forward  Does building height affect building efficiency? 3
  4. 4. High Rise Office Markets: key Tall Building Characteristics research questions  It is important to comprehend that the success or failure of  Do tall buildings still retain investor confidence? many tall building projects can be traced back to the specific features incorporated therein and the initial design decisions  How has the spatial pattern of high rise offices taken at the project outset. changed?  This has become even more significant given the recent structural problems experienced at the WTC following terrorist  Is there a positive correlation between rental levels attacks and the increasing environmental pressures incurred and building height? through the quest for „sustainable‟ or „green‟ buildings.  Spending money upfront on green technologies can have a  How has occupier perceptions changed since 9/11? significant impact on the long-term net benefits.  Is there a correlation between business cycles and  Strong link between building height and profitability, each of number of high rise buildings constructed? which can be influenced by what is occurring within global economies.  Are occupiers willing to pay a premium to occupy Santosa et al (2003), Picken, D.H. & Ilozor, BD (2003), Wener, upper or lower high rise office floors? R & Carmalt, H (2006)Tall Buildings : history of development Tall Buildings : development by continent 1970-1979 year completed in bands Continent 2,500 year completed in bands: 1970-1979 500 2,000 400 Frequency 1,500 Frequency 300 1,000 200 500 100 0 1919 and 1920- 1930- 1940- 1950- 1960- 1970- 1980- 1990- 2000 0 earlier 1929 1939 1949 1959 1969 1979 1989 1999 onwards Africa Asia Australia Europe North America South America year completed in bands ContinentTall Buildings : development by continent, 2000s Literature: rental evidence Continent  Variation in rental by floor year completed in bands: 2000 onwards  Grimaud (1989) assumption of floor rent is the same 1,500 at all levels  Lui and Chang (2004) large differences in floor rents based on accessibility, view and security 1,000  Economic agglomeration is higher in the CBD or lower Frequency stories of the same building (Lui and Chang, 2004) 500  Location and physical characteristics, land use, intensity of development impact upon price (Colwell and Munneke, 2006) 0 Africa Asia Australia Europe North America South America Continent 4
  5. 5. The Threat of Terrorist Attack Literature: 9/11 impact questions Will corporations continue to concentrate employees in  The reality of the September 11th, 2001 attack on the World  downtown locations? Trade Centre in New York is that tall buildings the world over are now viewed as potential terrorist targets.  Will corporations keep headquarter offices at prestige  Knock-on effects on the high rise office market, with various downtown locations? protagonists prematurely proclaiming the end of skyscrapers.  Negative views now appear misplaced there is a realm of  Will security and insurance costs lead to a re-consideration uncertainty which could make the market prone to change. of downtown locations?  Important to consider the financial implications on office  Will rents be lower and discounts higher to attract and markets including rental levels, insurance premiums, and retain tenants? vacancy levels determining the full extent of the WTC aftermath and factors such as corporate real estate location  Will rising costs lead to decentralization of activities? choices and urban form contrasting a pre and post 9/11 era.  Will employee concerns influence future site selection? Demisi, SV & Baen, J (2005), Dermisi, SV (2006), Laing, AM (2003), Reid, J (2004) (Johnson & Kasarda, 2003)Rental Analysis of Office Buildings in New York City Analysis: Rental Analysis Tall Buildings Data  CoStar data for the NYC market for 2007  range $38sqft to $250sqft: s=$42.83sqft  For this study, data on existing office buildings only  mean = $84.74sqft: median $75sqft  Sample size of 3406 buildings  rents are significantly higher in Midtown ($95.56sqft) than Downtown ($55.25sqft) (t=5.778)  Location:  2676 (78.6% Midtown)  Within Midtown, the highest rents are in the location with the highest  440 (12.9% Downtown) concentration of tall buildings (Plaza)  209 (8.5% Uptown)  Class A tall buildings ($90.19sqft) have rents significantly greater than Class B ($55.55sqft)  Tall buildings: 30 stories and above:  n=260  Interactive effects between location and class: Class B tall buildings in Midtown ($69.09sqft) have a higher rent than Class A in Downtown ($60.94sqft)  Analysis based on rental evidence reduces the usable dataset to 784 office building, 108 of which are tall buildings and all located in either Midtown or  Age differences: newer tall buildings (1980 onwards) have a higher rent Downtown ($110.20sqft) than pre-1980 tall buildings ($80.55sqft). Analysis: Comparative Rental Analysis Analysis: Comparative Rental Analysis Do tall buildings command a rental premium? There is mixed evidence Do tall buildings command a rental premium? The mean = $84.74sqft: for tall buildings is statistically greater than that for offices  below 30 stories ($60.07sqft) mixed evidence continues  Midtown: the rental difference between tall buildings ($95.56sqft) and other offices ($59.75sqft) is statistically significant (t=6.393) Age differences: tall buildings have higher rents  In prime sub-markets eg Plaza the differences in rent between tall office (statistically significant) than other offices for both new buildings and other offices is not statistically significant. (1980+) and older (pre-1980) property.  Only two submarkets in Midtown: Grand Central and Times Square have significant differences in rents between tall buildings and other offices Class: no significant difference in rent between Class A  Downtown: tall buildings attract a lower rent ($55.25sqft) than other offices tall buildings and Class A other office property (same ($63.84sqft) though difference is not statistically significant for Class B) 5
  6. 6. Literature: 9/11 impacts Interview findings  Several studies have shown that metropolitan CBDs are  Tall buildings help create an identity more resilient.  High rise buildings stimulate city/metro‟s  Miller et al (2003) high rise buildings continue to exhibit the status same fundamentals that made them successful before 9/11 with most tall buildings continuing to command a rental  They can inform an overall strategy premium  A big mass/cluster of buildings can be very  Dermisi and Baen (2005) benefits of locating in the CBD seem to outperform the suburbs impressive  Can create a buzz and facilitate business Dermisi (2006) effect of 9/11 more diverse with a lack of conduct  interest by business to locate in shadow areas.  Dermisi and Abadie (2006) increase in height associated (Example: Asian and Middle Eastern cities) with an increase in vacancy placing doubts on tall buildings Interview findings Interview findings  Investor appeal perspective Spread of tenants What motivates occupiers to take office    Spread of leases  Spread of risks space in tall buildings?  Depends on the company strategy and the  Investor risk factors country or the market they operate in Higher capital costs   There is status associated with tall Concentrates risk (all eggs in one basket)  buildings with high quality and a brand Difficulty in letting a large volume of space coming quality  onto the market  Depreciation is perceived to be high Interview findings Interview findings Two Types of Occupiers I) smaller occupiers taking only one or two floors in What type of corporations seek to  buildings with landmark status and prestige. They locate in tall buildings? want the prestige of the address. Often boutique international law and financial firms who enter  Financial services companies – London and the UK and need to be in such prominent  top lawyers, addresses II) Organizations (majors) looking to consolidate their advertising,   headquarters, e.g. City Group Building, HSBC etc. Tall  merchant banks, buildings offer efficient solution to take up 1.5-2 m sq.ft in Canary Wharf Tower  hedge funds  In the City only two buildings with 0.5m sq.ft floor area 6
  7. 7. Interview findings Interview findings  Tall buildings will continue to dominate the Iconic commercial architecture may influence occupiers skyline of cities Large corporations who want the status would pay a  Politicians and civic leaders will continue to “limited” premium encourage the development of tall buildings In the main tall buildings do not generate excess or  Globally increased pressure on land and abnormal returns population growth will create demand for high Tall buildings with exceptionally high floor area and good density and tall buildings, but there is need for: views attract higher returns  New ideas, innovation in design and engineering Institutional investors and funds do not go for tall buildings  Technological change in softer services – e.g. communications, climate control Most investors and funds would need a very large portfolio  Environmentally responsive and sustainable buildings to include tall buildings Top 21 Tall Buildings  1 Burj Khalifa (newly completed))  2 Taipei 101  3 Petronas Tower 1  4 Petronas Tower 2  5 Sears Tower  6 Jin Mao Building  7 Two International Finance Center  8 Citic Plaza  9 Shun Hing Square  10 Empire State Building  11 Central Plaza  12 Bank of China Tower  13 Emirates Tower One  14 The Center  15 T & C Tower  16 Aon Centre  17 John Hancock Center  18 Burj al Arab Hotel  19 Chrysler Building  10 Bank of America Plaza  21 Telekom Malaysia Headquarters Top 20 Under Construction  1 Mile High Tower (working name)  2 Burj Mubarak al-Kabir Mubarak Tower  3 Russia Tower  4 Incheon Tower  5 Chicago Spire  6 China 117 Tower  7 Millennium Tower World Business Center  8 Lotte Super Tower  9 Doha Convention Center Tower  10 Freedom Tower - One World Trade Center  11Pentominium  12 Busan Lotte Tower  13 Shanghai World Financial Center  14 Abraj Al Bait Towers  15 International Commerce Centre - Union Square  16 DAMAC Heights  17 Al Hamra tower  18 Ryugyong Hotel  19 Shard London Bridge 7
  8. 8. Tall Buildings : conclusion Tall Buildings : conclusion  Developer strategy and perceptions of profitable The evidence suggests that tall building development appear to be converging with growing strategies are evolving from a combination of demands from investors, tenants and occupiers for developer, investor and occupier interests and premium space for business activity and investment that their respective perceptions may be returns. converging in the current evolution of tall building strategies.  In the development or occupation of tall buildings, the height of the building is important in defining These strategies also appear to have some very the sense of prestigious business status, but other similar characteristics irrespective of their attributes of the building are necessary for the tall precise location: they are highly international. building to be attractive to investors and occupiers Tall Buildings : conclusion Other critical attributes are: prime location, innovation in the architectural qualities of the building rather than its tallness, the beneficial qualities of the configuration of the internal space for particular businesses, and the economic calculations of returns to both investors and occupiers. The location, the business performance of the built space and the cost and investment THANK YOU performance of the building will usually predominate in real estate strategy over the Ali Parsa iconic status of the building. E-mail: a.parsa@salford.ac.uk 8