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

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  • Olof Netzell

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.

Suggested Citation

  • Olof Netzell, 2009. "A study of micro‐level variation in appraisal‐based capitalisation rates," Journal of Property Research, Taylor & Francis Journals, vol. 26(3), pages 235-263, September.
    • Handle: RePEc:taf:jpropr:v:26:y:2009:i:3:p:235-263
    DOI: 10.1080/09599911003669682
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    Cited by:

    1. Chun-Chang Lee & Hsueh-Ling Fan, 2016. "The Impact of Administrative Characteristics and Residential Types on Income Capitalization Rates in Taipei, Taiwan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(10), pages 602-619, October.
    2. Elias Oikarinen & Heidi Falkenbach, 2017. "Foreign investors’ influence on the real estate market capitalization rate – evidence from a small open economy," Applied Economics, Taylor & Francis Journals, vol. 49(32), pages 3141-3155, July.

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