Capitalization Rate and Real Estate Risk Factors: An Analysis of the Relationships for the Residential Market in the City of Rome (Italy)

Manganelli Benedetto (), Anelli Debora (), Tajani Francesco () and Morano Pierluigi ()
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Manganelli Benedetto: School of Engineering, University of Basilicata, Viale dell’Ateneo Lucano, 85100 Potenza, Italy
Anelli Debora: Department of Civil, Environmental, Land, Building Engineering and Chemistry, Polytechnic University of Bari, Via Orabona 4, 70125 Bari, Italy
Tajani Francesco: Department of Architecture and Design, Sapienza University of Rome, Via Flaminia 359, 00196 Rome, Italy
Morano Pierluigi: Department of Civil, Environmental, Land, Building Engineering and Chemistry, Polytechnic University of Bari, Via Orabona 4, 70125 Bari, Italy

Real Estate Management and Valuation, 2024, vol. 32, issue 3, 101-115

Abstract: The assessment of income-producing properties - considered as the bulk of the existing assets - has rapidly increased. An efficient assessment of the market value of this kind of properties requires an adequate involvement of the main risk factors of the local real estate market for the determination of the capitalization rate for the income approach application. The aim of the work is to identify the most significant local real estate risk factors related to the market, the tenant and the context on the residential capitalization rate. The development of a regressive methodological approach applied to the residential sector of the city of Rome (Italy) is proposed. The obtained results show the susceptibility of the analyzed capitalization rate to the variation of the local real estate risk factors, in particular the per capita income and the variation of the rental values, by also considering the influences of the exogenous shocks and the expectation of the investors. The practical implications of the work consist in the possibility for evaluators to assess the likely changes in the capitalization rate in different residential contexts if variations occur in the most influential local risk factors identified by the proposed model.

Keywords: capitalization rate; real estate risk; exogenous shock; incomeproducing properties; real estate assessment; regression model (search for similar items in EconPapers)
JEL-codes: C00 R20 R30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:remava:v:32:y:2024:i:3:p:101-115:n:1008

DOI: 10.2478/remav-2024-0028

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