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The Accuracy of Consensus Real Estate Forecasts Revisited

For institutional real estate investors, forecasts of future costs, rents, vacancy rates, yields etc. and future returns for assets, sectors, regions, country and across other asset classes are key inputs into decisions about stock selection and tactical and strategic asset allocation.

Consequently, the ability of real estate forecasters to provide investment organisations with forecasts that add value should be a concern to both users and producers of real estate forecasts. Beginning in 1999, the IPF’s Consensus Forecasts have provided a rich source of data on market expectations of real estate investors. Building on previous research that has evaluated the accuracy of the IPF Consensus Forecasts, this study updates this existing work on the accuracy of rental growth, capital growth and total returns at the All Property level. In addition, it evaluates forecasting accuracy at the sector level. Given that real estate forecasters have stated that their main contribution is to identify relative rather than absolute performance, the availability of sector level forecasts presented an opportunity to assess the extent to which the consensus forecasts were able to predict the relative performance of each sector. Further, since it has been argued that failures in forecasting real estate returns are caused by limitations in yield forecasting, a further contribution of the research is that it evaluates the performance of the yield forecasts implied in the relationship between the explicit forecasts of rental and capital growth.