Abstract
Ever since Peter Dicken published his first seminal Global Shift which would become the bible of globalisation in the mid 1980s, globalisation studies have been carried out in many areas. Although buildings are by nature local, their markets have become increasingly global over the past 20 years. Nonetheless, few studies have been devoted to an in-depth analysis of the globalisation of property markets. Colin Lizieri has chosen to fill that gap by writing a unique book. Towers of Capital is indeed among the most ambitious books published in the field of real estate in recent years. Lizieri follows a multidisciplinary approach, covering the full spectrum of topics affecting office markets in financial centres world-wide (real estate, financial markets and urban theory) to overcome what he calls the ‘compartmentilisation’ of academic research.
The book is methodically composed of three chapters. In the first chapter, entitled Systems of Cities and Cities of Finance, Lizieri explores the concept of world cities and, in particular, the development of cities playing a key role in co-ordinating the global financial system, or what is commonly called international financial centres (IFCs). In the second chapter, Inside the Office Market, Lizieri focuses on the mechanics of the office market, especially that of prime properties in IFCs. The third chapter, entitled International Finance, Global Office Markets and Systematic Risk, builds on the first two chapters to investigate the interaction between financial markets and real estate markets. Lizieri’s analysis is well documented. Unsurprisingly, the City of London plays a big role in Towers of Capital’s empirical analysis.
In some ways, the book resembles a gigantic case study with extensive literature review on each topic covered. The wealth of references and empirical evidence makes for a rich reading experience that can be approached at different levels by students, researchers in property and urban planning, investors and policy advisors alike. The angle adopted in Towers of Capital is cogent. Given the role played by global financial flows in transnational economies, analysing the way financial centres are linked provides a much-needed insight into the interconnections that have made the world of property investors flat. Office markets which are intrinsically local although subjected to global forces are a great vehicle to conduct this analysis. Property researchers working on globalisation necessarily face the dilemma of finding the right balance between the very specific pertaining to the locational and functional characteristics of properties under study and the universal as commended by the intrinsic scope of globalisation. There is no doubt that the focus chosen by Towers of Capital is very narrow (i.e. prime office properties in IFCs). However, due to the predominant role played by financial flows in transnational economies, this relatively small market seems highly representative of the global economy as a whole. Lizieri explains how he strives to extend the scope of his analysis beyond the idiosyncrasies of the market under investigation to create “a schematic model of risk in IFC office markets that can act as a springboard for subsequent empirical work” (p. xi). That said, the analysis based on London, on US cities and on western European cities, might not be easily applicable to other cities, especially emerging global cities in Asia and the Middle East.
The thesis described in Towers of Capital has already been extensively covered in Lizieri’s academic publications. His first paper on the topic “The property market in a changing world economy” dates back to 1991. Lizieri has been a keen observer and a well-published researcher of the globalisation of property markets for over 20 years. There is no new theory in Towers of Capital. The main contribution of the book is to provide a big picture supported by multidisciplinary theoretical references and empirical evidence. In the introduction, he writes
The essential thesis examined starts from the increasing spatial clustering of global financial business. The concentration of financial activity in a small number of major cities, acting as the coordinating centres for an interlinked financial system has been accompanied by a redevelopment of the core office markets of those cities and a growing functional specialisation of activity in those offices as high-order financial services and the business and professional service firms that supply them tended to drive out other users. A consequence of this process has been an interlocking of occupation, ownership and finance: firms that occupy space are the same firms that acquire offices as an investment asset (directly or indirectly) and who provide finance and funding for the creation of new office space (p. xi).
The interlocking generates substantial systematic risk, by ultimately increasing the volatility in office markets. Extreme events affecting international financial markets will impact the whole range of actors in the property markets on a global scale: occupiers, investors and property debt holders. Lizieri notes that, as a result, one can expect a greater tendency to cyclical behaviour of office markets in IFCs. This trend is all the more significant as since the 1990s; innovations in real estate investment vehicles (for example, the rise of private equity and listed real estate such as real estate investment trusts, aka REITs) and debt markets (for example, securitisation) have enlarged the spectrum of real estate investment vehicles, thereby lifting barriers to entry to a once lumpy and hard to access market and increasing the integration between property markets and capital markets which are notoriously prone to booms and shocks. The accrued financial dimension of real estate appears like both a condition and a consequence of the globalisation of property markets. Whilst explaining that the linkage of real estate to financial markets has been a cause for concern among regulatory authorities for over a decade, Towers of Capital adopts a very balanced view on potentially controversial issues, carefully stating both the benefits and the pitfalls of globalisation. In the Epilogue, Lizieri acknowledges that rather than providing definite answers, it is “a staging post, a base camp for a continuing programme of research on real estate in global financial cities” (p. 297).
The book, with its solid theoretical underpinnings and far-reaching analysis, has the potential to open the way to more empirical work on the impact of globalisation on real estate markets. As expressed by the author in the conclusion, it seems likely that Towers of Capital will form a framework, and set the standard, for globalisation studies in real estate for the years to come.