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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.

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UNDERSTANDING THE DUTCH MARKET FOR INDUSTRIAL AREAS

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  1. 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

  2. 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

  3. 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

  4. PLANNING APPROACH

  5. 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

  6. 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

  7. 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

  8. 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, …

  9. NEGATIVE CONSEQUENCES • Low occupancy rates and rapid deterioration of existing areas • Redevelopment task:

  10. NEGATIVE CONSEQUENCES • Stagnating redevelopment processes • Lower line represents finished redevelopment projects

  11. 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

  12. 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

  13. 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

  14. 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!

  15. THANKS… Questions?

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