Understanding the dutch market for industrial areas
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UNDERSTANDING THE DUTCH MARKET FOR INDUSTRIAL AREAS. with System Dynamics Modeling ERES conference Eindhoven 2011 Session: Market Research, Analysis and Forecasting Erik Blokhuis Eindhoven University of Technology [email protected] GENERAL.

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UNDERSTANDING THE DUTCH MARKET FOR INDUSTRIAL AREAS

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Understanding the dutch market for industrial areas

UNDERSTANDING THE DUTCH MARKET FOR INDUSTRIAL AREAS

with System Dynamics Modeling

ERES conference

Eindhoven 2011

Session: Market Research, Analysis and Forecasting

Erik Blokhuis

Eindhoven University of Technology

[email protected]


General

GENERAL

  • Dutch policy on industrial areas is fully aimed at:

    • attracting companies

    • stimulating local economy

    • creating employment

  • From these perspectives, the Dutch policy is very successful

    • 32% of total employment

    • 35% of added value in NL is created on industrial areas

    • annual yield: € 1.7 million / hectare

    • distributive effect on employment


General1

GENERAL

  • Supply of space for industrial activities is important factor for Dutch economy

  • This economic relevance influences the planning and realization of industrial areas

    • large governmental influence (80% of supply of building land)

    • availability of large stocks of immediately grantable land

    • strong connection to wishes and demands of companies

      • legal certainty, good accessibility, flexibility, sufficient space, low costs


Planning approach

PLANNING APPROACH


Planning approach1

PLANNING APPROACH

  • Three main steps in planning process:

    • estimating the level of regional demand (business location monitor)

    • determining the future supply of industrial areas (existing plans)

    • selecting new locations

  • Actors’ influence

    • municipalities have control over supply of industrial land

    • companies find industrial areas attractive, because of low land prices, legal certainty, and possibilities to buy more land than necessary

    • investors are almost absent, because of low gaining capacity, low rent level, high sale risks


Negative consequences

NEGATIVE CONSEQUENCES

  • Large supply of new industrial area land plots

  • Low land prices

  • Low occupancy rates and rapid deterioration of existing areas

  • Stagnating redevelopment processes


Negative consequences1

NEGATIVE CONSEQUENCES

  • Large supply of new industrial area land plots

    • 50% of construction land is reserved for industrial activities, while industry covers less than 20% of the currently built-up land

    • Causes:

    • lack of realism in demand estimations

    • municipalities choose development in stead of redevelopment

    • mutual competition between municipalities in attracting companies


Negative consequences2

NEGATIVE CONSEQUENCES

  • Low land prices

    • Land prices for residential areas are 3-4 times higher

      Related problems: inefficient land use, low investor involvement, low attention for maintenance, …


Negative consequences3

NEGATIVE CONSEQUENCES

  • Low occupancy rates and rapid deterioration of existing areas

    • Redevelopment task:


Negative consequences4

NEGATIVE CONSEQUENCES

  • Stagnating redevelopment processes

    • Lower line represents finished redevelopment projects


Interventions

INTERVENTIONS

  • Government recognized problematic situation, and proposes five interventions:

    • employment of the so-called SER tool

    • introduction of park management

    • reservation of 400 million Euros to accelerate the redevelopment of deteriorated areas until 2013, aiming to redevelop 6.500 ha

    • stimulation of regional cooperation, which should result in a competitive and sustainably managed stock of industrial areas

    • increasing involvement of professional real estate parties in the industrial area market


System dynamics model

SYSTEM DYNAMICS MODEL

  • Most of these interventions will not have an optimal effect because the Dutch market for industrial areas functions as a complex system

    • governing interventions will only be successful when the underlying processes support them

    • using System Dynamics (SD) to model the market for industrial areas as a system

    • SD deals with internal feedback loops that affect the behavior of the system (more realistic), and can comprise a high number of soft, hard-to-quantify factors besides numerical data

    • now: only causal loop diagram. In the future, a stock and flow diagram will be constructed

    • eventually, we want to identify leverage points in the system, in order to recommend on most effective intervention measures


Results

RESULTS

  • Remarkably, this causal loop diagram lacks negative feedback (or viability) loops

    • These keep systems working everlastingly

    • Domination of reinforcing loops will result in an unstable system and oversupply of stocks (the case in the current market for IA)

    • Leverage points:

    • Demand calculation

    • Share of new areas in meeting demand

    • Land prices

    • Value of existing areas

    • Municipal competition

    • Role of professional real estate companies


Recommendations

RECOMMENDATIONS

  • Short term:

    • Improving demand calculation method

    • Obliging municipalities to study possibilities of redevelopment for meeting spatial demands

    • Drastically increasing land prices

    • Establishing a national fund for increasing area value

    • Long term:

    • Positioning planning and development of IA on regional scale

    • Creating strong preconditions for professionalization of IA market (increasing role of professional RE parties)

      Requires large public investments!


Thanks

THANKS…

Questions?


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