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Determinants of Cross-Sectional Variation in Discount Rates, Growth Rates, and Exit Cap Rates

Author

Listed:
  • Åke GUNNELIN

    (Stockholm Institute for Financial Research)

  • Patric H. HENDERSHOTT

    (University of Aberdeen)

  • Martin HOESLI

    (HEC-University of Geneva, FAME, and University of Aberdeen (School of Business))

  • Bo SÖDERBERG

    (Royal Institute of Technology, Stockholm)

Abstract

This study investigates the determinants of key input variables in valuers’ DCF models used for estimating market values for offices. Data from 599 valuations in 2000 from Stockholm, Gothenburg and Malmö are used to explain variation in discount rates, expected growth rates in net operating income and exit cap rates. Our ability to explain the relatively wide variation in appraisal assumptions with plausible co-variates generates confidence in the appraisal process. This has important implications because most value and returns indices of commercial real estate world-wide are appraisal-based.

Suggested Citation

  • Åke GUNNELIN & Patric H. HENDERSHOTT & Martin HOESLI & Bo SÖDERBERG, 2003. "Determinants of Cross-Sectional Variation in Discount Rates, Growth Rates, and Exit Cap Rates," FAME Research Paper Series rp90, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp90
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    File URL: http://www.swissfinanceinstitute.ch/rp90.pdf
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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. Peter Öhman & Bo Söderberg & Ola Uhlin, 2011. "Accuracy of Swedish property appraisers’ forecasts of net operating income," Journal of Property Research, Taylor & Francis Journals, vol. 29(2), pages 103-122, November.
    3. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 1-43.
    4. Martin Hoesli & Elion Jani & André Bender, 2005. "Monte Carlo Simulations for Real Estate Valuation," FAME Research Paper Series rp148, International Center for Financial Asset Management and Engineering.

    More about this item

    Keywords

    Real Estate Appraisal; DCF; Discount Rates; Capitalization Rates;
    All these keywords.

    JEL classification:

    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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