Counteracting Path Dependencies: ‘Rational’ Investment Decisions in the Globalising Commercial Property Market

Abstract

IntroductionThe commercial property industry is going international. New, professional investors are appearing in the markets which are turning their attention to novel, far-away, and even opaque market regions. It is these new investors in particular which seek à rational' foundation for their decisions, based on key performance indicators and financial ratios. Their decision making is based on a systematic procedure which is methodologically founded in neoclassical models of rational choice. Systematic algebraic calculations lead to results that are as representative as possible and thus inform transparent solutions and optimum investment choices. However, investors not only rely on rational modelling, but also on path-dependent knowledge, which is at least partially vague, not systematically generated, and not methodologically reliable.Our purpose in this paper is to show how new investors in the commercial property market attempt to introduce rational decision making, but stick to path dependencies at the same time. They therefore use a combination of rational and path-dependent decision making. As we show, investors still fill some central gaps in their rational knowledge with path-dependent knowledge öa situation that can be ascribed to the opaqueness of the new local markets. But although some path dependencies are likely to remain in the future, there is a strong tendency to replace them with rational models of decision making. Hence, we speak of rational decision versus path dependency.We begin with a theoretical^conceptual part (section 2) in which we discuss rationality and path dependency. After some methodological notes (section 3), some comments on new local market entry (section 4), and the actors in the property sector (section 5), we present our empirical evidence (section 6) which then leads to our final conclusions (section 7). Rationality and path dependencyIn the context of the financial sphere and the property markets, economic geographers have focused primarily on financially driven shifts in socioeconomic space (for example,

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