Assessing the accuracy and dispersion of real estate investment forecasts |
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| Affiliation: | 1. Eurobank Greece;2. Master Management Group and Krakow University of Economics, Poland;3. School of Real Estate & Planning, Henley Business School, University of Reading, Whiteknights, Reading, Berkshire RG6 6UD, UK;1. Key Laboratory of Advanced Process Control for Light Industry (Ministry of Education), School of Internet of Things Engineering, Jiangnan University, Wuxi 214122, PR China;2. College of Automation and Electronic Engineering, Qingdao University of Science and Technology, Qingdao 266061, PR China;3. Department of Mathematics, Faculty of Science, King Abdulaziz University, Jeddah 21589, Saudi Arabia;1. Department of Agricultural and Biological Engineering, Purdue University, West Lafayette, IN 47907, USA;2. Department of Agricultural and Biological Engineering, Department of Earth, Atmospheric, and Planetary Sciences, Purdue University, West Lafayette, IN 47907, USA;3. Department of Civil Engineering, Purdue University, West Lafayette, IN 47907, USA;4. Department of Hydrology and Water Resources Management, University of Kiel, Olshausenstr. 75, D-24118 Kiel, Germany |
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| Abstract: | Existing empirical evidence has frequently observed that professional forecasters are conservative and display herding behaviour. Whilst a large number of papers have considered equities as well as macroeconomic series, few have considered the accuracy of forecasts in alternative asset classes such as real estate. We consider the accuracy of forecasts for the UK commercial real estate market over the period 1999–2011. The results illustrate that forecasters display a tendency to under-estimate growth rates during strong market conditions and over-estimate when the market is performing poorly. This conservatism not only results in smoothed estimates but also implies that forecasters display herding behaviour. There is also a marked difference in the relative accuracy of capital and total returns versus rental figures. Whilst rental growth forecasts are relatively accurate, considerable inaccuracy is observed with respect to capital value and total returns. |
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