ERES

Summer arrived with vengeance at the weekend sending crowds to our beaches.

The chances are that many of the families packing their cars in anticipation of a wide expanse of sand will have checked the tide times. These tides will depend on the positions of both the sun and the moon. The lifeguards will have checked more sinister forecasts: the rip-tides.  Forecasting dangerous currents requires additional data on the contours of the beaches.

The risks in real estate are purely financial and far less deadly. Periodic vacancies are inevitable as leases draw to a close and tenants vacate to space more befitting their needs. Risk managers are more concerned about vacancies during periods of economic stress when income is at risk across their portfolio.  Are there more risky parts of the portfolio that are more exposed to vacancies? To do this, risk managers need to understand more detailed relationships, not just on the risk of a downswing but also the influence of building quality on vacancy risk in a downswing. Colloquially these buildings are described as secondary or Grades C or D. Can the relationship between building quality and vacancy risk in a downswing be quantified for use in risk models?

At ERES this week Malcolm Frodsham will be discussing the relationship between vacancies, the cycle and building quality.