UNCERTAINTY IN MARKET VALUE ESTIMATES - Implications for property performance measurement

All nationwide return indices for direct owned property are based on valuations, which give a discussion of how well market value estimates reflect transaction prices and market movements. Two valuation experiments in relation to the Swedish Property Index give indications about the magnitude of the variation in estimated market values as well as variation in individual discounted cash flow parameters. The variation in market value estimates is found to be much dependent on the special market situation with fast escalating rents in Stockholm CBD. The results from the two experiments are discussed in relation to the variation found in other studies. One main conclusion is that valuation based performance measurement should be on an aggregated level and that several performance measures should be used for decision making. A challenge for further research is to develop tools that explicit expresses risk exposure.