Application of a Cyclical Capitalization Model to the London Office Market

Abstract

Whilst the property market shows cyclical behaviours, opinions of value based on income approaches assume that there is stable or perpetually growing (or decreasing) income without considering the effects of the property market cycle on leasing contracts. The paper therefore focuses on the application of a valuation method for income producing properties which have a value that is affected by the upturns and downturns of property market cycles. Continuing from the previous works in this area (d’Amato, 2003, d’Amato, 2013; d’Amato, 2015) the income approach method here is applied to the office market in four areas of London. In applying this valuation method, property valuation and time series analysis are integrated. The work provides a general introduction on cyclical capitalization as another family of valuation methodologies based on the income approach and then an application of cyclical capitalization to areas of London which highlight their strength and weakness.

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Keywords

Real Estate Market Cycle; Cyclical Capitalization; Direct Capitalization

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