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

28 Pages Posted: 8 Mar 2004

See all articles by Ake Gunnelin

Ake Gunnelin

Royal Institute of Technology (KTH) - Department of Real Estate and Construction Management

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Geneva - Research Center for Statistics; University of Aberdeen - Business School

Bo Soederberg

University of Gävle - Department of Business Administration

Date Written: September 2003

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 Malmo 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.

Keywords: Real Estate Appraisal, DCF, Discount Rates, Capitalization Rates

JEL Classification: R33

Suggested Citation

Gunnelin, Ake and Hendershott, Patric H. and Hoesli, Martin Edward Ralph and Soederberg, Bo, Determinants of Cross-Sectional Variation in Discount Rates, Growth Rates, and Exit Cap Rates (September 2003). Available at SSRN: https://ssrn.com/abstract=471242 or http://dx.doi.org/10.2139/ssrn.471242

Ake Gunnelin

Royal Institute of Technology (KTH) - Department of Real Estate and Construction Management ( email )

SE-100 44 Stockholm
Sweden

Patric H. Hendershott

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Geneva - Research Center for Statistics ( email )

Geneva
Switzerland

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Bo Soederberg

University of Gävle - Department of Business Administration ( email )

801 76 Gavle
Sweden

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