Nowadays it is very popular to say that real estate investors must focus on real estate fundamentals. The maxim “location, location, location” has driven many recently done acquisitions all over the world. However, sound real estate fundamentals does not guarantee a good deal. Even the most conservative real estate investors have experienced significant losses in the value of their properties in the past few years.

The timing of acquisitions is also very critical because the changes in capitalization rates/yields varies in cycles.

So how do investors know when to execute acquisitions or sales? Can they get any help from valuations?

Financiers, investors and the whole market traditionally rely on valuations. Valuations are good at accomplishing their objective, which is to determine a specific value at a specific point of time. But because valuations rely heavily on sales comparables and yield/discount rate comparables, valuations only reveal what everyone else is currently paying. They provide no indication of the risk of capital loss. Thus, valuations can give a false sense of security and creates a systematic risk if the cycles are not properly analyzed when doing transactions.

So forecasting is the key when analyzing whether to sell or buy. Besides the real estate fundamentals, the cycles must be forecasted as well. The problem for investors is that there are very few service providers who can help with forecasting.

At Newsec we update our “Five Year Forecast” on yields, rents, vacancies and total returns twice a year. We have been doing this for years now and the forecast has become a very important tool for our transaction advice services. The “Five Year Forecast” is also an important tool in our international co-operation within the Newsec Group and helps us to understand the Nordic and Baltic economies and property markets better. I think that this is something that really adds value for our clients when they need to decide - Is the timing right?