Automated valuation models (AVMs) in commercial real estate market

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Journal Title

Journal ISSN

Volume Title

Insinööritieteiden korkeakoulu | Master's thesis

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, Heidi

Thesis advisor

Viikari, Jukka
Tiihonen, Topi

Keywords

automated valuation models, commercial real estate, office property, real estate valuation, AVMs

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