Q4.1) How do the development and occupier cycles interlink and what is the importance of this int...
1. Characterisation of a Real Estate Cycle
1.1. business upturn & development
1.1.1. 1. Typically occurs at a time of low interest rates and high capital availability
1.1.1.1. low IR
1.1.2. 2. Generates a rise in economic activity and strong user demand
1.1.2.1. raise in economy-demand
1.1.3. 3. Occurs at a time of low development so available space absorbed quickly, therefore;
1.1.3.1. low development availability
1.1.3.2. Vacancy rates falls
1.1.3.3. Rents rise
1.1.4. 4. Leading to increased investor optimism
1.1.4.1. high prospect
1.1.5. 5. Property yields fall due to:
1.1.5.1. low IR
1.1.5.2. low expected risk
1.1.5.3. increased investor demand
1.1.5.4. higher expected rental growth
1.1.6. 6. capital values rise
1.1.7. 7. As expected profitability increases, new developments begin and land values increase
1.1.7.1. land value increase
1.1.8. 8. As the boom continues lending may be extended to more speculative schemes
1.1.8.1. more speculative schemes
1.1.9. 9. Due to the lag in new supply hitting the market rents and capital values continue to rise
1.1.9.1. lag make value continue to rise
1.2. Business Downturn & Overbuilding
1.2.1. 10. Real interest rates rise in response to the boom and the business cycle turns downwards
1.2.1.1. IR rise
1.2.2. 11. Demand and absorption of new space levels off and then begins to fall
1.2.2.1. space demands decline
1.2.3. 12. New developments continue to reach market
1.2.3.1. new project keep reaching
1.2.4. 13. Vacancy rates begin to rise and rental growth slows
1.2.4.1. vacancy falls and rents grow slowly
1.2.5. 14. Capitalisation rates due to:
1.2.5.1. increased IR
1.2.5.2. slowed growth
1.2.5.3. higher perceived risk
1.2.6. 15. capital values fall
1.2.7. 16. less new development starts
1.3. Adjustment
1.3.1. 17. The fall in new demand coincides with peak in supply
1.3.1.1. highest supply with falling demand
1.3.2. 18. Vacancy rates rise above their equilibrium level
1.3.2.1. oversupply
1.3.3. 19. rental values fall
1.3.4. 20. Developers may be unable to generate sufficient income to cover interest payments
1.3.4.1. short in income for developers
1.3.5. 21. Lower capital values means that refinancing is not possible
1.3.5.1. hard to refinance
1.3.6. 22. Bankruptcies increase and poor returns leads to dis-investment from the real estate market
1.3.6.1. the weak die
1.4. Slump
1.4.1. 23. Demand and development are low
1.4.2. 24. Vacancy rates above their equilibrium level
1.4.3. 25. Open market rents have fallen below their equilibrium level
1.5. Next Cycle
1.5.1. 26. The effects may extend to the next upturn if oversupply was so great
1.5.1.1. As there will be still be substantial vacant space left from the previous cycle
1.5.1.1.1. full of supply
1.5.2. 27. Therefore, limited need for new development