Real option and vertical mixed-use development

Jiawei Zhong, Eddie C.M. Hui

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

Vertical mixed-use development is a favourite choice in urban development in high-density Asian cities to increase the land use efficiency. The flexibility of construction timing and the restrictions by lease contracts in vertical mixed-use projects are usually different from horizontal ones and single-use properties. To improve the valuation for vertical mixed-use projects, this study re-examines the real option pricing model. Simultaneous development for different uses and a finite maximum waiting period are the major characteristics of these projects. An approach is introduced to determine whether to develop a mixed-use project vertically or horizontally on the basis of a statistics called the critical height premium. The vertical mixed-use project pricing model can be further verified by containing a height premium if market price information is derived from non-vertical mixed-use properties. This study suggests a more comprehensive real option approach to quantify the advantages and disadvantages of operating vertical mixed-use developments.

Original languageEnglish
Pages (from-to)382-395
Number of pages14
JournalInternational Journal of Strategic Property Management
Volume25
Issue number5
DOIs
Publication statusPublished - 30 Jun 2021

Keywords

  • Height premium
  • Mixed-use development
  • Real option
  • Vertical

ASJC Scopus subject areas

  • Strategy and Management

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