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Determinants of Cross‐Sectional Variation in Discount Rates, Growth Rates and Exit Cap Rates
Author(s) -
Gunnelin Åke,
Hendershott Patric H.,
Hoesli Martin,
Söderberg Bo
Publication year - 2004
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1080-8620.2004.00090.x
Subject(s) - economics , econometrics , cash flow , discounted cash flow , real estate , variation (astronomy) , capitalization rate , value (mathematics) , financial economics , actuarial science , statistics , real estate investment trust , mathematics , finance , physics , astrophysics
This study investigates the determinants of key input variables in valuers' discounted cash flow models used for estimating market values for offices. Data from 599 valuations in 2000 from Stockholm, Gothenburg and Malmö are used to explain variation in discount rates, expected growth rates in net operating income and exit cap rates. Our ability to explain the relatively wide variation in appraisal assumptions with plausible covariates generates confidence in the appraisal process. This has important implications because most value and returns indices of commercial real estate worldwide are appraisal based.