Academic journal article Journal of Real Estate Literature

International Articles: Corporate Real Estate Strategy: The Malaysian Perspective

Academic journal article Journal of Real Estate Literature

International Articles: Corporate Real Estate Strategy: The Malaysian Perspective

Article excerpt

Abstract

This study analyses the relationships between corporate real estate (CRE) strategy and financial performance of companies in Malaysia during 1998 and 2003. The identification of CRE strategies is based on the work of Nourse and Roulac (1993) and maps these strategies to the financial performance of companies through multivariate models. The results indicate that 80% of the companies had a dominant CRE strategy that matched the Nourse and Roulac framework in both periods. For the 1998 analysis, there was no apparent link between CRE strategy and share performance. Indeed those companies not having a strategy had better share performance. In contrast, there was evidence of a CRE strategy making a contribution to share price in 2003. In particular, the strategy to facilitate managerial process and knowledge framework is shown to enhance financial performance, compared to other CRE strategies or the no strategy alternative. This study concludes that CRE strategy can make a positive contribution to financial performance, but needs more attention from management in order to maximize its potential.

The globalization of real estate markets has promoted growth in corporate real estate (CRE) research as businesses have become increasingly aware of the importance of CRE structure and strategy on business corporations (Rutherford and Nourse, 1988; Rutherford and Stone, 1989; Nourse and Roulac, 1993; and Roulac, 2001). Most of the research has highlighted the conceptual linkage of CRE to the value of firms, with Nourse and Roulac identifying CRE strategies based on the strategic management context. However, there is an absence of research that has empirically tested the CRE strategy linkages with a company's financial performance. This study addresses this gap by focusing on an empirical investigation of CRE strategies and their relationships with the financial performance of companies. In order to test this relationship, this study applies the classification scheme of Nourse and Roulac in exploring CRE strategy utilization among companies in Malaysia across two time frames (1998 and 2003), both after the Asian Financial Crises. The aim is to examine whether CRE strategy has any influence on the financial performance of Malaysian companies. During this period the Malaysian economy went from negative GNP growth in 1998 (-5.4%) to 5.9% GNP growth in 2000 and 3.7% growth in 2003. The GNP per capita was flat for 1997 (RM 12,051), 1998 (RM 12,134), and 1999 (RM 12,305) rising to 14,098 RM in 2003.1

Corporate Real Estate Strategies: Literature Perspectives

Roulac (2001) pointed out that ''It is a rare occurrence for a corporate business strategy to include a CRE strategy.'' The reason for this limited connection arises from the actions of corporate strategic management researchers who tend to neglect the significance of real estate assets in the business organization. As a consequence, little priority is given to CRE. However, from a different perspective, researchers in CRE tend to emphasize real estate issues and have disconnected CRE from corporate business issues. For example, Roulac attempted to break this barrier by highlighting the contributions of CRE strategies to the competitive advantage of the business organization.

According to Roulac (2001), superior CRE strategies can contribute to the competitive advantage of a business organization through creating and retaining customers, attracting and retaining outstanding people, contributing to the business processes, promoting enterprise values and cultures, stimulating innovation/learning, enhancing core competency, and enhancing shareholder wealth. CRE's contribution in creating and retaining customers is achieved through the provision of an attractive physical environment by business organizations to their customers. For instance, Krumm and Vries (2003) claim that real estate can increase a firm's revenue by improving the corporation's sales network. …

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