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The Financialization of Business Property and What

It Means for Cities and Regions
a

Ludovic Halbert , John Henneberry & Fotis Mouzakis

a

LATTS (Laboratoire Techniques, Territoires et Socits), Universit Paris-Est, 68 Av.

Blaise Pascal, Cit Descartes, F-77455 Marne la Valle Cedex 2, France. Email:
b

Department of Town and Regional Planning, University of Sheffield, Western Bank,

Sheffield S10 2TN, UK.
c

Frynon Consulting, 11 Frynonos Street, GR-1632 Athens, Greece. Email:

Published online: 06 Mar 2014.

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To cite this article: Ludovic Halbert, John Henneberry & Fotis Mouzakis (2014) The Financialization of Business Property
and What It Means for Cities and Regions, Regional Studies, 48:3, 547-550, DOI: 10.1080/00343404.2014.895317
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Regional Studies, 2014

Vol. 48, No. 3, 547550, http://dx.doi.org/10.1080/00343404.2014.895317

The Financialization of Business Property and

What It Means for Cities and Regions

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LUDOVIC HALBERT*, JOHN HENNEBERRY and FOTIS MOUZAKIS

*LATTS (Laboratoire Techniques, Territoires et Socits), Universit Paris-Est, 68 Av. Blaise Pascal, Cit Descartes,
F-77455 Marne la Valle Cedex 2, France. Email: ludovic.halbert@enpc.fr
Department of Town and Regional Planning, University of Shefeld, Western Bank, Shefeld S10 2TN, UK.
Email: j.henneberry@shefeld.ac.uk
Frynon Consulting, 11 Frynonos Street, GR-1632 Athens, Greece. Email: f.mouzakis@ frynon.com
(Received December 2013: in revised form February 2014)
H ALBERT L., H ENNEBERRY J. and M OUZAKIS F. The nancialization of business property and what it means for cities and
regions, Regional Studies. The papers in the special issue examine the strategies and practices of investors and their relations with
other actors involved in the production of business property. Although the globalization of these activities has occurred largely
in the last 1020 years, it has prompted marked changes in the geography of commercial property investment. International
capital has owed to a limited number of favoured locations, but because of the spatial xity of real property, local actors and
institutions remain an important inuence on investment decisions. This poses challenges for urban development and regeneration
policies that depend on private investment capital.
Finance

Business property

Urban development

Regional development

H ALBERT L., H ENNEBERRY J. and M OUZAKIS F.

H ALBERT L., H ENNEBERRY J. et M OUZAKIS F. La nanciarisation de limmobilier commercial: son importance pour les grandes
villes et les rgions, Regional Studies. Les articles publis dans le numro spcial examinent les stratgies et les pratiques des
investisseurs et leurs rapports dautres agents impliqus dans la production de limmobilier commercial. Bien que la mondialisation
de ces activits se soit produite dans une large mesure pendant les 10 ou 20 dernires annes, elle a provoqu dimportants
changements de la gographie du march de linvestissement en immobilier commercial. Les capitaux internationaux ont afu
destination dun nombre limit de zones privilgies, mais cause de la xit spatiale des biens immobiliers, les agents et les
institutions locales exercent toujours une inuence importante sur les dcisions dinvestir. Cela constitue un d pour les politiques
en faveur du dveloppement et de la redynamisation des zones urbaines qui dpendent du capital dinvestissement priv.
Finances

Immobilier commercial

Dveloppement urbain

Dveloppement rgional

H ALBERT L., H ENNEBERRY J. und M OUZAKIS F. Die Finanzialisierung von Geschftsimmobilien und ihre Auswirkung auf Stdte
und Regionen, Regional Studies. In den Beitrgen der Sonderausgabe werden die Strategien und Praktiken von Investoren sowie ihre
Beziehungen zu den anderen an der Produktion von Geschftsimmobilien beteiligten Akteuren untersucht. Obwohl sich die
Globalisierung dieser Aktivitten grtenteils in den letzten 1020 Jahren vollzogen hat, hat sie zu ausgeprgten Vernderungen
in der Geograe der Investitionen in Geschftsimmobilien gefhrt. Das internationale Kapital ist zu einer begrenzten Anzahl von
bevorzugten Standorten gestrmt, doch aufgrund der rumlichen Festigkeit von Immobilien ben lokale Akteure und Institutionen
weiterhin einen groen Einuss auf die Investitionsentscheidungen aus. Dies stellt Politiken fr urbane Entwicklung und Sanierung,
die auf privates Investitionskapital angewiesen sind, vor Herausforderungen.
Finanzen

Geschftsimmobilien

Stadtentwicklung

Regionalentwicklung

H ALBERT L., H ENNEBERRY J. y M OUZAKIS F. La nancializacin de la propiedad comercial y su efecto en las ciudades y
regiones, Regional Studies. En los trabajos del nmero especial se analizan las estrategias y prcticas de los inversores y sus relaciones
con otros protagonistas que participan en la produccin de la propiedad comercial. Aunque la globalizacin de estas actividades ha
2014 Regional Studies Association
http://www.regionalstudies.org

Ludovic Halbert et al.

548

ocurrido en gran parte en los ltimos 10 a 20 aos, ha propiciado cambios notables en la geografa de la inversin en propiedades
comerciales. El capital internacional se ha destinado a un nmero limitado de lugares ms favorecidos, pero debido a la jeza
espacial de la propiedad real, los protagonistas locales y las instituciones siguen inuyendo signicativamente en las decisiones
de inversin. Ello plantea retos para el desarrollo urbano y las polticas de regeneracin que dependen del capital de inversin
privada.
Finanzas

Propiedad comercial

Desarrollo urbano

Desarrollo regional

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JEL classications: R11, R12, R14, R51

This special issue brings together papers from urban

economics and urban geography to analyse how investment in business property may affect the economic,
physical, spatial and social development and form of
cities and regions. It challenges the notion of a free
market that achieves an optimal balance between the
demand (from end users) for accommodation and its
supply (by developers and investors). The growth in
rent relations, government(s) deregulation, and innovations in nance and funding have markedly increased
the scale and reach of property investors. By examining
their strategies, practices and instruments, and their
relations with other actors involved in the production
of business property (such as developers and policy
makers), the papers provide new insights into the contested process of urban and regional change. The contributions achieve this by adopting a wide range of
theoretical frameworks, including portfolio management theory, neo-institutional economics, old institutional and territorial economics, and actor-network
theory. They combine an equally varied array of methodological approaches, ranging from econometric modelling to thick case studies. In this conclusion three
major results are put forward.
THE NEW GEOGRAPHIES OF BUSINESS
PROPERTY INVESTMENT
Like other components of the urban environment such
as infrastructure, housing or land, business property has
been a well-established class of investment for a long
time (S COTT , 1996). Similarly, the techniques used to
inform property investment decisions such as investment valuation and appraisal, and modern portfolio
analysis and management have evolved over a long
period (S COTT , 1996; H ENNEBERRY and C ROSBY ,
2012). However, what is remarkable is the rapid
growth in the globalization of these activities, in their
technical evolution and application, and in the linkage
of the (commercial) real estate and nancial sectors of
the market. As L IZIERI and P AIN (2013) and S TEVENSON et al. (2013) note, this has largely occurred in the
last two decades. Investors drive to minimize risk and
maximize returns to property has resulted in both diversication (across sectors and locations) and selectivity (of
particular types of properties and places), creating new

geographies of business property investment and refashioning cities and regions.

This special issue explores the multiple scales at
which the particular spatialities promoted by institutional investors take place. At the global level,
money ows like mercury (C LARK , 2005) and coagulates in a limited number of metropolises (LIZIERI and
PAIN ; STEVENSON et al.). The same process happens
within national urban systems, such as that of India
(H ALBERT and R OUANET , 2013). There, property
investment tends to be overrepresented in certain
major business property markets (Delhi, Mumbai, Bangalore, Chennai). Echoes of this pattern are also seen in a
federal state like California (H EBB and S HARMA , 2013).
Lastly, a geography of hotspots and blind spots is evident
within city-regions themselves, such as the Mexico City
Metropolitan Region, where foreign investors have
concentrated their ownership in some peripheral
locations (D AVID and H ALBERT , 2013). The special
issue thus conrms that the marked spatial selectivity
adopted by institutional investors contributes to the
dynamics of contemporary economic concentration
observed in cities and regions (H ALBERT , 2010).
The papers discuss these discriminating spatial patterns. B ALL and N ANDA (2013), in their aggregate
analysis, nd that investment in physical and social infrastructure (transport, health, education) in a developed
economy such as the UK does not have a signicant
impact on the geographies of business property provision at the regional level. Apart from planning constraints, this may point to the inuence of institutional
factors in regional property markets. In examining the
institutional make-up of a particular type of cityregion global nancial centres L IZIERI and P AIN
(2013) argue that the complex interdependencies
between the occupational market and the supply of
capital result from the economic specialization of such
cities. Because the geography of nancial investment
favours certain cities and regions, most contributions
in this issue recognize the importance as explanatory
factors of the logics adopted by the investment industry.
For example, H ENNEBERRY and M OUZAKIS (2013)
demonstrate that the nave familiarity affecting
London-based institutional investors results in the differentiated treatments of core and non-core UK
regional property markets.

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The Financialization of Business Property and What It Means for Cities and Regions

549

This issue thus demonstrates how the supply of

capital for business property depends on the socially
constructed appreciation of risk-adjusted returns by professionals from the nancial and real estate industries,
and by their interactions with a wider system of urban
production that involves policy-makers, business associations and others. Analyses from the perspective of institutional and territorial economics provide new insights
into the geographies of nance capital investment in
business property. While being cognizant of institutional
investors relative autonomy, the papers also acknowledge the importance of place-specic institutions and
actors in framing the formers investment decisions.
The following sections discuss these points.

distant investors and the messy spatial and social materialities of cities and regions (H ALBERT and R UTHERFORD , 2010). Several papers in this issue highlight
how investors spatial strategies are translated, negotiated, adjusted and sometimes resisted by a series of
private and public actors involved in the production of
business property and urban development. For instance,
H ALBERT and R OUANET (2013) suggest that transcalar territorial networks contribute to the inclusion in
investors portfolios of irrevocably local business properties, while D AVID and H ALBERT (2013) observe how
the calculative practices of institutional investors are
dynamically adjusted to and contested by the cultural and institutional make-up of a given market.

THE TERRITORIALITIES OF FINANCE

CAPITAL FLOWS

THE IMPACT OF INSTITUTIONAL INVESTORS STRATEGIES ON CITIES AND

REGIONS

Investment selectivity, exercised at multiple scales,

should not be considered synonymous with the deterritorialization of the investment industry. The comparison of places and buildings is central to investment
decisions and requires the mobility of capital (T HEURILLAT and C REVOISIER , 2013). But once such a decision
is made and an asset is acquired, the capital is spatially
xed so, as this issue illustrates, there remains an unavoidable place-specic dimension to investment in
business property.
Firstly, investors are themselves embedded in specic
locations (that is, nancial districts) that display the attributes of neo-Marshallian nodes (A MIN and T HRIFT ,
1992). While each investment decision is taken by the
investment committee of an individual nancial organization, these decisions are largely inuenced by a collective appreciation, within the broader investment
industry, of what are good locations, assets and end
users. In this sense, investment decisions are dependent,
from the perspective of territorial economy, on the
workings of milieus.
Secondly, while most contributions emphasize the
extent to which capital ows in business property have
now become global, some rene this observation by
stressing how land, buildings and construction rights
used by investors rest on multiple levels of regulation.
Conrming what has been observed with other components of the urban fabric, this issue highlights the
importance of national, regional and local regulations
in supporting or limiting the ability of institutional
investors especially of non-domestic nancial organizations to gain access to business property.
Thirdly, a number of papers analyse how the task
division adopted in the real estate industry to suit investors produces specic territorialities. Service providers,
such as third-party nancial managers, international
property consultants or lawyers, as well as developers,
have become key intermediaries that contribute to the
commutation between the nancial expectations of

This issue develops a critical assessment of the impacts of

institutional investors increasing role in nancing
business property and infrastructure.
H EBB and S HARMA (2013) hypothesize that, despite
their implication in the global nancial collapse, pension
funds may adopt long-term investment strategies that
could, under certain circumstances, support the redevelopment of neighbourhoods facing nancial, social and
urban difculties. T HEURILLAT and C REVOISIER
(2013) argue that more sustainable practices may be
included in large-scale urban complexes, as long as the
affected local communities negotiate with the development industry that indirectly represents investors
interests.
However, contributors to the issue more often identify potentially harmful consequences of the nancialization of business property investment. They make three
arguments. Firstly, that the spatial selectivities pursued
by institutional investors may paradoxically be detrimental to the nancial performance of their investments. S TEVENSON et al. (2013) show that the
synchronization of ofce market cycles allied with the
concentration of investments in a limited number of
world cities largely counters the diversication benets
that justify such investments. L IZIERI and P AIN
(2013) complement this by highlighting the higher
level of risk to which investors are exposed due to the
heightened boombust nature of international nancial
centres (IFCs) ofce markets. H ENNEBERRY and
M OUZAKIS (2013) also point out that investment managers bias towards assets in London prevents them from
allocating more capital to non-core markets, depriving
investors of better risk-adjusted returns in the long run.
Secondly, the papers discuss the consequences for
both the nancial stability and the economic development of cities and regions. L IZIERI and P AIN (2013)
argue that the nexus between nance and business property observed in IFCs constitutes a major source of

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550

Ludovic Halbert et al.

systemic risk for the overall nancial system and

economy. At a more local level, there is a risk that the
provision of business property of the quantity, quality
and price that supports the evolution of local productive
systems may be limited by investors own decisions.
H ENNEBERRY and M OUZAKIS (2013) observe that
rms in non-core localities, cities and regions pay relatively higher prices for business property than rms in
core localities. Simultaneously, core regions may experience a higher degree of volatility in the provision of
capital for business property. Furthermore, H ALBERT
and R OUANET (2013) and D AVID and H ALBERT
(2013) observe that institutional investors try to neutralize a source of risk by selecting the types of property
sectors, buildings and end users in which they invest.
This might prove detrimental to those activities that
investors perceive to be more nancially risky.
Thirdly, some papers discuss the impact of institutional investors spatial selectivity on the wider
urban and regional fabric. H ALBERT and R OUANET
(2013) highlight the processes that reinforce social
and spatial polarization and eviction in Bangalore,
India, while H EBB and S HARMA (2013) criticize the
risk of increasingly uneven development between
and within US cities resulting from pension funds

investment strategies. This leads several papers to question the roles of institutional investors in the contested
production and reproduction of places. On the one
hand, there is a risk of an apparent de-politicization
of urban development when investment decisions are
removed from the public realm to be subject instead
to the logic of nancial decision-makers. On the
other hand, investment in business property always
happens in situated places. Consequently, it may be
the object of erce negotiations, or even contestations,
as observed respectively by T HEURILLAT and C REVOISIER (2013) in Switzerland and by D AVID and
H ALBERT (2013) in the Mexico City Metropolitan
Region.
It is also clear that both the mobility and the cyclical
nature of nance capital constitute a challenge to
business property-led policies. There is a danger that
cash-starved local authorities, dependent on investors
willingness to support a given property market, might
adopt strategies that follow and even anticipate the
latters changing preferences ever more closely.
However, this issue shows that policy-makers and
other local stakeholders may exploit the spatial xity
of property assets to exert leverage over property
investors.

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