Actual Cash Flow Estimation of Commercial Real Estate and its Application to Identify the Value Change Driver

Abstract

A regression model is developed to estimate the actual cash flow of commercial real estate from market data. The results indicate highly useful coefficients that are consistent with qualitative request against the character of properties, and time series analysis shows that the actual rent changes along ups and downs of real-estate market. Using the results and estimated cap rate from our previous study, the driver of market value change is analyzed. The empirical analysis suggests that most of the changes in the expected value are due to the changes in cap rates rather than the changes in cash flows.