A study of micro‐level variation in appraisal‐based capitalisation rates

Olof Netzell

Journal of Property Research, 2009, vol. 26, issue 3, 235-263

Abstract: This paper explores how appraisal‐based going‐in and exit capitalisation (cap) rates vary on the micro‐level, i.e. how they differ from property to property. The studied database consists of 3022 discounted cash flow market valuations of office properties in Stockholm, Gothenburg and Malmö during 1998--2004. The purpose of the paper is to test the ‘rationality’ of Swedish office property valuations. By rationality is meant the extent to which appraisals, in particular appraisal cap rates, follow from economic theory. This is an important issue since commercial property markets rely heavily on valuations. Cap rates are regressed on characteristics of the property, other valuer assumptions regarding the property (i.e. the property’s market rent) and variables that capture broad time series variation in cap rates. For the most part the studied appraisals follow the expected pattern. They do not exhibit major evidence of irrationality in the above mentioned sense though some of the findings point to the need for further research.

Date: 2009
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DOI: 10.1080/09599911003669682

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