Forecasting Commercial Property Market Performance:
Beyond the Primary Reliance on Econometric Models
A thesis submitted in fulfilment of the requirements for the degree of
Doctor of Philosophy
Treshani Perera
BSc (Hons) in Quantity Surveying – University of Moratuwa
BSc (Hons) in Applied Accounting – Oxford Brookes University
MAIQS, ACCA Affiliate
School of Property Construction and Project Management
College of Design and Social Context
RMIT University
August 2018
Forecasting Commercial Property Market Performance:
Beyond the Primary Reliance on Econometric Models
i
DECLARATION
I certify that except where due acknowledgement has been made, the work is that of the author alone;
the work has not been submitted previously, in whole or in part, to qualify for any other academic award;
the content of the thesis is the result of work which has been carried out since the official commencement
date of the approved research program; any editorial work, paid or unpaid, carried out by a third party
is acknowledged; and, ethics procedures and guidelines have been followed.
Treshani Perera
August 2018
Forecasting Commercial Property Market Performance:
Beyond the Primary Reliance on Econometric Models
ii
ACKNOWLEDGEMENT
First and foremost, I wish to thank my principal supervisor, Dr. Wejendra Reddy, for his invaluable
guidance, advice and assistance with the many challenges faced during my Ph.D. research candidature.
This thesis has benefited greatly from many stimulating discussions we had, and his insightful comments
and feedback. I wish to give an equal acknowledgement to Professor David Higgins who helped to get
this research started and continuously supported as an external advisor. David was instrumental with
industry liaison for data collection. His supervision was very motivational, always providing the
encouragement to reach the research goals. I also owe a special gratitude to my co-supervisors, Dr.
Woon-Weng Wong who provided useful input into the quantitative modelling and Professor Ron
Wakefield, for their encouragement and constructive advice throughout the research.
The nature and enormity of research meant this thesis would not have been possible without the support
of industry personnel. I would also like to acknowledge the support of the many property and financial
market experts who gave their time and contributed their knowledge in the semi-structured interview
research phase. Their expert advice and recommendations were valuable in shaping this research and
were significant in result validation. Special thanks go to Mark Wist (property consultant) who provided
constructive comments and suggestions to improve my research.
I have been very fortunate to receive the RMIT International Ph.D. Scholarship. I am grateful to RMIT
University for the sponsorships and technical support that made this doctoral study achievable. I
acknowledge the assistance of Mr. Robert Sheehan from Sharp Words Consultancy for his editorial
comments. I also appreciate the support provided by the staff and fellow Ph.D. colleagues at the School
of Property, Construction and Project Management, RMIT University.
I thank Professor Kerry London for her meaningful introduction to the world of research philosophy. I
also acknowledge Professor Chris Eves, Dr. Eric Too, Associate Professor Ashton De Silva, Dr.
Mehrdad Arashpour and Dr. Michelle Turner, for their constructive feedback during my Ph.D. study.
Finally, I acknowledge the support, patience and understanding of all my family members. My late
father’s blessings and treasured love have always motivated me to achieve the fruit of my academic
endeavour. I owe my deepest gratitude to my husband Dimuthu. This thesis would not have been
possible without his unwavering support, love, encouragement and tolerance. Also, I feel blessed to
conceive my little sweetheart at the end of my Ph.D. journey. I would also like to thank my mother and
brother Shehan for their motivational support, love and encouragement. This thesis is dedicated to my
mother who inspires me and to whom I owe forever for everything I have achieved.
To all, I thank you for your support, guidance and encouragement. It is highly appreciated.
Treshani Perera
Forecasting Commercial Property Market Performance:
Beyond the Primary Reliance on Econometric Models
iii
TABLE OF CONTENTS
Table of Contents......................................................................................................................................... iii
List of Figures ................................................................................................................................................ v
List of Tables .............................................................................................................................................. viii
List of Equations ............................................................................................................................................ x
List of Abbreviations .................................................................................................................................. xii
Abstract ........................................................................................................................................................ xv
CHAPTER 1.
INTRODUCTION ................................................................................................................... 1
1.1
Background to the Research .............................................................................................................. 1
1.2
Statement of the Problem .................................................................................................................. 5
1.3
Research Aim and Objectives ........................................................................................................... 5
1.4
Research Methodology ...................................................................................................................... 6
1.5
Contribution to Knowledge ............................................................................................................... 7
1.6
Scope and Limitations ....................................................................................................................... 8
1.7
Thesis Layout and Structure .............................................................................................................. 9
1.8
Publications and Presentations ........................................................................................................ 11
CHAPTER 2.
LITERATURE REVIEW – COMMERCIAL PROPERTY MARKET FORECASTING
AND THE OUTLOOK ON DOWNSIDE RISK EXPOSURE ........................................................................ 13
2.1
Introduction ..................................................................................................................................... 13
Commercial Property Market Forecasting ............................................................................................... 15
2.2
Commercial Property Market Structure and Features ..................................................................... 15
2.3
Principles of Forecasting ................................................................................................................. 28
2.4
Commercial Property Market Forecasting ...................................................................................... 50
Downside Risks in the Commercial Real Estate Environment ............................................................... 73
2.5
Downside Risks in Commercial Property Market ........................................................................... 73
2.6
Decision Maker’s Imperatives for Downside Risks ...................................................................... 106
2.7
Summary ....................................................................................................................................... 119
CHAPTER 3.
METHODOLOGY – PRAGMATIC RESEARCH DESIGN .......................................... 122
3.1
Introduction ................................................................................................................................... 122
3.2
Overview of Methodology ............................................................................................................ 123
3.3
Philosophical Orientation .............................................................................................................. 125
3.4
Strategies of Inquiry ...................................................................................................................... 127
3.5
Methods of Data Collection and Analysis ..................................................................................... 132
3.6
Validity and Reliability ................................................................................................................. 141
3.7
Ethical Considerations ................................................................................................................... 142
3.8
Summary ....................................................................................................................................... 143
Forecasting Commercial Property Market Performance:
Beyond the Primary Reliance on Econometric Models
iv
CHAPTER 4.
QUANTITATIVE ANALYSIS – EVALUATING COMMERCIAL PROPERTY
MARKET FORECAST ACCURACY ............................................................................................................. 145
4.1
Introduction ................................................................................................................................... 145
4.2
Secondary Data Arrangement........................................................................................................ 147
4.3
Testing for Forecast Accuracy....................................................................................................... 153
4.4
Analysing Outliers of Forecast Errors ........................................................................................... 166
4.5
Testing for Relationships between Variables ................................................................................ 177
4.6
Summary ....................................................................................................................................... 190
CHAPTER 5.
QUALITATIVE ANALYSIS – DETERMINING THE CURRENT STATUS OF
COMMERCIAL PROPERTY MARKET FORECASTING AND THE LEVEL OF DOWNSIDE RISK
EXPOSURE ............................................................................................................................................... 193
5.1
Introduction ................................................................................................................................... 193
5.2
Semi-Structured Interview Plan .................................................................................................... 194
5.3
Australian Commercial Property Market Forecasting Practice ..................................................... 196
5.4
Downside Risk Exposure in the Australian Commercial Property Market ................................... 223
5.5
Summary ....................................................................................................................................... 243
CHAPTER 6.
FORECAST DECISION MAKING MODEL DEVELOPMENT: INDUSTRY
EVALUATION .......................................................................................................................................... 246
6.1
Introduction ................................................................................................................................... 246
6.2
Best Practices for Improving Forecast Accuracy .......................................................................... 246
6.3
ADSV Decision Making Model for Integrating Downside Risks to Improve Forecast Accuracy 253
6.4
Expert Panel Comments, Feedback and Recommendations .......................................................... 256
6.5
Summary ....................................................................................................................................... 260
CHAPTER 7.
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ..................................... 262
7.1
Introduction ................................................................................................................................... 262
7.2
Summary ....................................................................................................................................... 262
7.3
Achievement of Research Objectives ............................................................................................ 264
7.4
Contribution to Knowledge ........................................................................................................... 284
7.5
Recommendations ......................................................................................................................... 285
7.6
Further Research Directions .......................................................................................................... 287
REFERENCES .................................................................................................................................................. 290
APPENDICES .................................................................................................................................................... 318
Appendix 1: Journal Publications............................................................................................................... 318
Appendix 2: Supplementary Appendix to Literature Review .................................................................... 356
Appendix 3: Semi-Structured Interview Guideline .................................................................................... 360
Appendix 4: Participant Information and Consent Form ........................................................................... 362
Appendix 5: Test Results of Augmented Dickey Fuller Test ..................................................................... 366
Appendix 6: Test Results of Vector Autoregression in between Property and Economic Forecast Errors 376
Appendix 7: Semi-Structured Interview Respondents Profile .................................................................... 380