Automated valuation models (AVMs) in commercial real estate market
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Insinööritieteiden korkeakoulu |
Master's thesis
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Authors
Date
2019-06-17
Department
Major/Subject
Mcode
Degree programme
Master's Programme in Real Estate Economics (REC)
Language
en
Pages
63+14
Series
Abstract
Automated valuation models (AVMs) have gained popularity and widely adopted in many research domains. In residential real estate, AVMs have been used to predict the price of houses, apartments and increasingly showed their effectiveness. Their advantages are ranging from speed, accuracy to consistency and inexpensiveness. However, in commercial real estate, AVMs have been remained under development phase due to the fact that commercial properties are heterogeneous and irregularly traded in the market. Therefore, this thesis aims to contribute to the development of AVMs for commercial real estate. Literature review and valuation theories are first examined in order to determine what factors should be included in AVMs. Further, the thesis demonstrates how AVMs could be developed under two different market circumstances by utilizing all possible data sources. The findings show that in the first empirical case where the sales-comparison approach is used, property physical attributes, locational factors, and economic factors all affect property values. Thus, they should be included in the AVM development. In the second empirical case where income approach is used, property’s finance information such as cash inflows and outflows are key for valuation accuracy. In order to use fully automated valuation model for the second case, rental models and overall capitalization rate models should be researched further.Description
Supervisor
Falkenbach, HeidiThesis advisor
Viikari, JukkaTiihonen, Topi
Keywords
automated valuation models, commercial real estate, office property, real estate valuation, AVMs