Work detail

Forecasting Models of Office Capitalization Rate in the Czech Republic

Author: Mgr. Radek Zelenka
Year: 2011 - winter
Leaders: PhDr. Pavel Streblov M.Sc.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 95
Awards and prizes:
Link:
Abstract: The presented study describes commercial real estate markets with focus on office
sector. We identify the capitalization rate (investment yield) as one of the
fundamental elements in the commercial property valuation. Based on historical
office investment yield observations and various econometric models we predict the
office capitalization rate development in the Czech Republic. We use data of the
United Kingdom, Ireland and Sweden to identify common yield trend especially with
respect to their real estate crises in 1990s that embody features similar to the real
estate crisis in 2008-2010. As explanatory variables for the econometric models
(ARIMA, OLS, VAR) we use financial and macroeconomic variables. We use the
OLS models to identify the optimal set of explanatory variables, to be applied in
VAR models. On dataset of the comparable countries we compare the goodness of fit
of the VAR and ARIMA models. The best variants are then used for the prediction of
the Czech office yield. Lastly, we improve our results by implementing exogenous
forecasts of macroeconomic variables used in the models. Majority of our predictions
forecast a slow decrease of the capitalization rate in next two years (2010-2012) in
the magnitude of 0.25% - 1% (to 6.25%-6%).

Partners

Deloitte

Sponsors

CRIF
McKinsey
Patria Finance