How about yields and capitalisation rates when the rental market is down?

Etienne Dupuy

ERES from European Real Estate Society (ERES)

Abstract: Yields and capitalisation rates have remained untouched for some months now, yet the rental markets have been down significantly. One can say it is due to the flow of capital in a context of depressed bonds and stock markets: but would this be considered irrational? The interest rates, quite stable over the recent period, have had a low impact. We think RORAC model, presented at ERES 2003, can bring some insight on the risk characteristics of the possible real estate cash flows; and help understand why such a phenomenon is currently happening. As it measures a risk profile for each lease structure, it can help value over or under rented properties as it does for properties rented at market value. Building on previous works on a pan European basis, we justify a rational reasoning for the current yield stability and find why some property differentiation and segmentation is bound to come, between prime bond like properties and the others.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2004-06-01
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2004_132

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