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

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  • Etienne Dupuy

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.

Suggested Citation

  • Etienne Dupuy, 2004. "How about yields and capitalisation rates when the rental market is down?," ERES eres2004_132, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2004_132
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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