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Business & Economics

COMMERCIAL PROPERTY MARKET RISK ASSESSMENT BY APPLYING EXTREME VALUE THEORY
Viktorija Cohen, Darius Zabulionis, Birute Galiniene

ABSTRACT. This paper deals with long term forecasting of the risk of the commercial property market. The forecasting of the risk was conducted by applying the extreme value theory (EVT) and considering two indicators (the yield and vacancy rate) of two sectors (offices and shopping centres) concerning two participants of the market (sellers and investors) in Vilnius Lithuania. EVT was applied by assuming that the average values of the reference periods (3 months) of the yield and vacancy rate are independent and are identically distributed random variables. Four forecast periods were considered: 1, 3, 5 and 10 years. The attractiveness of the sectors of the market was as well assessed on the basis of the obtained values of the risks. It has been determined that the sector of the shopping centres is more attractive than the offices for both sellers and investors for all the forecast periods .

KEYWORDS: commercial property market, risk, extreme value theory, yield forecasting, vacancy rate.

JEL classification: C53, E37, G17, R30, R33.