Forecasting office capitalization rates and risk premia in emerging markets

As international property investors increasingly understand and appreciate the benefits of diversification and look to achieve higher returns, cross-border real estate investment has increased. In this context, the issue of the country risk premium is crucial as these types of investments present a wide range of risk and return opportunities that need to be understood and, ideally, quantified. Naturally, the decision of whether or not to invest begins with an assessment of how much additional return is required to compensate for the additional risk associated with a particular country. Establishing these risk premiums is particularly difficult since cross-border investors often lack local market knowledge and encounter transparency issues when trying to gain an understanding of the market. These questions matter particularly to institutional investors looking to make allocation decisions across geographically diversified holdings. Given the problem of appropriate pricing in emerging markets, this study will attempt to forecast capitalization rates for these markets using widely available macroeconomic data and property-related market ratings. This cross-sectional study will employ univariate and multivariate regressions. We will initially identify various factors with a significant relationship to cap rates in markets where real estate pricing data is available. Office cap rate data from Real Capital Analytics (RCA), Jones Lang LaSalle-LaSalle Investment Management and Investment Property Databank (IPD) for sets of 23 to 25 overlapping countries will be used as dependent variables in the analysis. Once the significant factors have been established, we will extrapolate the model out to markets that have the necessary background data, but lack usable cap rate information. In other words, we will forecast cap rates for countries that lack data - as is typical for emerging markets.

Department dc:contributor.department

Massachusetts Institute of Technology. Center for Real Estate

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2008

Authors dc:creator

• Dasgupta, Vipasha
• Knapp, Alexander Ward Nathaniel

Advisor dc:contributor.advisor

• William C. Wheaton.

• Architecture.
• Urban Studies and Planning.
• Center for Real Estate.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/59495

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/59495