Abstract
Real estate markets are periodically plagued by excess supply, rent concessions and few arms-length transactions. During such periods, valuation requires a discounted cash flow analysis, but how far into the future must cash flows be forecast and what will the forecasted cash flows and value be at the end of the forecast period? The model presented shows that cash flows need to be forecast only until equilibrium is reached at which point value equals (depreciated) replacement cost. The value/replacement-cost ratio for the Sydney office market in 1992 is calculated to illustrate the argument.
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