Forecasts set expectations for future levels of income, capital and total returns. These forecasts may be for annual return estimates, or of long-term performance expectations.
The most common datasets used for forecasting across European markets are City level prime rents and yields.
A simple income return estimate can be made using the net (of irrecoverable expenses) prime yield and a simple capital growth estimate can be made by adding the impact of the change in yield on capital values to the percentage change in prime rent. Achieved returns on held properties will also be affected by incentives and depreciation.
When income returns are low and rental growth is muted; irrecoverable costs, incentives and depreciation become significant determinants of returns.
But do forecasts reflect return expectations after deductions, or are they a pre-depreciation, pre-costs, hypothetical, indication of market trends? If so, was this intended?
RES and Bayfield Training surveyed 19 respondents across 16 organisations to ascertain the range of forecast inputs across Europe and the approaches taken to revenue and capital deductions.
Read the full report here Rents Deductions and Forecasts.