A Study Into Hedonic Analysis On Rent Value And Valuation Of Commercial Real Estate Property

Since2005, China has gradually developed into the world’s sixth-largest commercialreal estate investment market following the United States, Britain, Japan, Germany andFrance. In the next decade, China’s commercial real estate market will contribute29.4%tothe world’s market share, which is expected to increase by4times. It can be predicted thatthe commercial real estate in China is in its initial stage, will show high-speeddevelopment. Thus, it is of great significance to do research on the commercial real estatevaluation and study into the value determinants.This paper carries out related research mainly from two aspects: first, studying theinfluencing factors on the intrinsic rent value; second, the market value evaluation. In theanalysis of influencing factors on rent value part, selecting343offices to lease in the U.K.as the sample, using hedonic price model, the paper studies the influences of physicalattributes, neighborhood attributes, lease-related attributes and location attributes on rents,tries to explore the rents’ intrinsic determinants. The empirical results indicate that EnergyPerformance Certificates negatively affect office rents; rental value is highly correlatedwith lease type; the longer weighted average unexpired lease term, the higher rents; theshorter distance to nearest subway, the higher rents premium; rent distance to the nearestairport and landfill has unexpectedly negative effects, but the effects are not significant.In the market value evaluation part, selecting a specific London office pending forsale as the case, this study firstly carries on qualitative analysis, secondly evaluates theoffice’s investment value using income approach, thirdly conducts sensitivity analysis andMonte Carlo simulation analysis to assess uncertainty of macro-and microeconomicfactors that affect the project value, and finally comes to the conclusion on whether it isworth investing. The results show that the NPV of the investment is￡10,818,647, and IRRis9.38%. In risk analysis, the exit yield and bankruptcy risk is the most sensitive, followed by target rate, market growth rate and vacancy rate. Considering all the variables changesimultaneously, IRR is most likely to fluctuate around the mean value (10.11%), and NPVgenerally shows to be positive. In conclusion, the project is worth investing.