Agreement and Accuracy in Consensus Forecasts of the UK Commercial Property Market

Abstract

Property forecasts are an integral part of the property investment process at the strategic, tactical and individual asset levels. This study investigates the nature, extent and patterns of disagreement and uncertainty in the forecasts of UK property investors and their advisors. In this paper, the Investment Property Forum's consensus forecasts from 1999–2004 are analysed. The study finds that property forecasting organizations tend to exhibit the characteristics of a consensus, potentially indicating a herding bias among forecasting organizations. Given high levels of agreement and high levels of error in the consensus forecasts, uncertainty in the property forecasts of the individual organizations seem to be primarily generated by common factors rather than by the individual forecasting organization itself. This is not a unique feature of property market forecasters as non‐property forecasters display similar patterns. A key source of uncertainty in the property market forecasts of capital and total returns seems to have been due to problems of forecasting yield shifts. The analysis suggests that there are inefficiencies in property market forecasts.