UNDERSTANDING THE DUTCH MARKET FOR INDUSTRIAL AREAS with

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 • 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

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 • 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 • Large supply of new industrial area land plots • Low land prices • Low occupancy rates and rapid deterioration of existing areas • Stagnating redevelopment processes

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 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 CONSEQUENCES • Low occupancy rates and rapid deterioration of existing areas – Redevelopment task:

NEGATIVE CONSEQUENCES • Stagnating redevelopment processes – Lower line represents finished redevelopment projects

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 • 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 • 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 • 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… Questions?