Forecasting office rents with ensemble models – the case for European real estate markets

Benedict von Ahlefeldt-Dehn, Marcelo Cajias and Wolfgang Schäfers

Journal of Property Investment & Finance, 2022, vol. 41, issue 2, 182-207

Abstract: Purpose - Commercial real estate and office rental values, in particular, have long been the focus of research. Several forecasting frameworks for office rental values in multivariate and univariate fashions have been proposed. Recent developments in time series forecasting using machine learning and deep learning methods offer an opportunity to update traditional univariate forecasting frameworks. Design/methodology/approach - With the aim to extend research on univariate rent forecasting a hybrid methodology combining both ARIMA and a neural network model is proposed to exploit the unique strengths of both methods in linear and nonlinear modelling. N-BEATS, a deep learning algorithm that has demonstrated state-of-the-art forecasting performance in major forecasting competitions, are explained. With the ARIMA model, it is jointly applied to the office rental dataset to produce forecasts for four-quarters ahead. Findings - When the approach is applied to a dataset of 21 major European office cities, the results show that the ensemble model can be an effective approach to improve the prediction accuracy achieved by each of the models used separately. Practical implications - Real estate forecasting is essential for assessing the value of managing portfolios and for evaluating investment strategies. The approach applied in this paper confirms the heterogeneity of real estate markets. The application of mixed modelling via linear and nonlinear methods decreases the uncertainty of abrupt changes in rents. Originality/value - To the best of the authors' knowledge, no such application of a hybrid model updating classical statistical forecasting with a deep learning neural network approach in the field of commercial real estate rent forecasting has been undertaken.

Keywords: Commercial real estate; Time series forecasting; Machine learning; Deep learning; Office rent; ARIMA; N-BEATS (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jpifpp:jpif-11-2021-0094

DOI: 10.1108/JPIF-11-2021-0094

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