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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 e.g.j.blokhuis@tue.nl. GENERAL.

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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

e.g.j.blokhuis@tue.nl

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 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?