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

This study investigates the determinants of key input variables in valuers' discounted cash flow 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 covariates generates confidence in the appraisal process. This has important implications because most value and returns indices of commercial real estate worldwide are appraisal based. Copyright 2004 by the American Real Estate and Urban Economics Association