ABSTRACT
The last chapter concentrated on models which were used to explain cycles in the commercial property market. The models considered in this chapter have a more general purpose of understanding the short-run dynamics of the links between the commercial property market and the wider economy. This is an evolving area of study, both academically and in practice where such models are used to produce short-term forecasts of key property variables. There is a range of detailed approaches for each variable so the chapter reviews and compares a number of models to draw general conclusions about the links between the property market and the economy. It does not suggest a definitive approach. This should assist interested readers to build their own models
Forecasts, whether implicit or explicit, are a central part of any investment decision. The expected return must equal or exceed the target (or required) return and the former can only be produced from a forecast of income. The target return comprises a risk free return, taken from the gilt market, and a risk premium. Both are time varying (see Chapter 10 for a detailed discussion).
