Financialisation and metropolisation in European

Dernière mise à jour : 1 juin 2020

Full title of the paper: Financialisation and participation in the metropolisation dynamics of European LPCs

Article published in the Journal of European Real Estate Research, in collaboration with Alain COËN, professor at Université du Québec à Montréal, Arnaud SIMON, associate professor at Paris Dauphine University, and Saadallah ZAITER, PhD candidate at Paris Dauphine University.

Purpose - This article aims to explore the relationship between the financialisation dynamics of listed property companies (LPCs) and their participation in the metropolisation dynamics, in ten European countries between 2000 and 2017. The study takes place in a context of globalised real estate markets and modification of traditional urban economics.

Design/methodology/approach - The measure of financialisation corresponds to a beta increase, in the sense of the capital asset pricing model, and is corroborated by an informativeness index. LPC-owned properties are classified along two spatial segmentations. Panel models are used to analyse the relation between financial and urban hierarchy transformation (through building arbitrages).

Findings - Financialisation is generally associated with a decrease in the number of assets owned, especially in the Netherlands and the UK, whereas non-financialised companies tend to increase their number of assets, especially in “flight to quality” countries such as Germany and Switzerland. In the first case, non-urban spaces and small and medium urban areas are arbitraged in favour of urban cores and metropoles. In the second, investments are reallocated towards hinterlands and the lower segments of the urban hierarchy. Over the study period, the parallelism between the financial hierarchy and the urban hierarchy was reinforced. Spain illustrates the risks of this evolution, whereas Sweden and Belgium present specificities.

Originality/value - This article illustrates how LPCs function as transmitting channels in the new spatial and urban organisation.

Keywords: Metropolisation, financialisation, Listed Property Companies, European cities.

Introduction - Over the last 20 years, the concept of metropolisation has become increasingly important in urban and regional scholarly literature and has often associated with the concept of financialisation. However, what financialisation of the urban environment means is often unclear and needs to be defined (Lizieri and Pain, 2014; Halbert et al., 2014; Aalbers, 2019). The main objective of this study is to explore the relationship between the financialisation dynamics of European listed property companies (LPCs) and their participation in metropolisation dynamics through their spatial arbitrages. The study period, 2000-2017, is characterised by heterogeneous globalisation of real estate markets, changes in the business environment and an important evolution of the traditional urban economics.

Contemporary to urban financialisation is the implementation of the new real estate investment trust regimes. By broadening the investor base, these regimes have allowed more funds to be invested into the urban market over the last two decades. If real estate is often considered an alternative asset class, then it nevertheless presents the interesting diversification feature of having a low correlation with other markets. However, location biases may also affect institutional investors’ investment decisions. These biases might generate over-investments, for instance, in international financial centres, which are generally believed to provide the highest risk-adjusted expected returns (Lizieri and Pain, 2014; Henneberry and Mouzakis, 2014). In this context, we may state that LPCs’ investment strategies contribute to reshaping the geography of commercial real estate investment and accelerating the metropolisation process.

In this study, the concept of financialisation is based on the capital asset pricing model (CAPM), which is the foundation of modern finance theory and consists of a financial integration measure. From the SNL Real Estate database, we define a sample of 99 LPCs that own buildings in ten European countries. We observe a heterogeneous increase of their financial integration and document how these variations can be placed in relation to their participation in metropolisation dynamics through their strategic building arbitrages. The definition of financialisation is also confirmed at the microeconomic level by examining various financial criteria and the link with informativeness. Robust econometric checks of the reallocation towards metropoles over the financialisation of LPCs are reported.

The article is organised as follows. Section 2 offers a literature review of the evolution of LPCs in Europe, the metropolisation dynamics and the globalisation of the real estate markets. Section 3 is devoted to the methodology, the dataset and the nomenclature of spatial units. Section 4 reports the results at the spatial and firm levels and discusses various robustness checks. Section 5 concludes by highlighting our main findings.

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