An: u201cOwners, investors and managers are over-estimating the income from their property.u201d

LOS ANGELES—Rent growth may be grossly overestimated, according to a new study from Xudong An, a visiting scholar at the UCLA‘s Ziman Center for Real Estate, reports exclusively. The study shows that the conventional “pro-forma” method of calculating rent growth actually inflates the results, but the authors developed a new method that tracks nationwide rent growth and fluctuations to produce more accurate results.

Current national rent growth is estimated at 3%, but An tells that is an inaccurate reading of the data. “The conventional estimation of commercial rent is an overestimation,” An says. “We discovered that the rental growth is much lower than 3%; it’s closer to 1%. This means that owners, investors and managers are over-estimating the income from their property and the value of the property. They need to look carefully at the actual income growth of their property.”

The new method developed by the report looks at the actual rents in Q2 2001 and Q2 2010 of 9,066 properties owned by the National Council of Real Estate Investment Fiduciaries. During this nine-year period, the market experienced a full growth cycle, making it an ideal time to show true rent growth. Using this method, the report authors, who include Yongheng Deng, National University of Singapore, Jeffrey D. Fisher, Indiana University and Maggie Rong Hu, University of New South Wales, estimate a rent growth of 1% when all property types are combined. In addition to showing that rental growth is below the standard estimate, the report also shows that rental growth is much more erratic than typically perceived.

When looking at individual property types, An finds that multifamily has the lowest average rental growth; however, retail properties have the poorest risk-return ratio of any other property type with the most uncertain rental growth. The full article will be released by UCLA next week. UCLA recently completed an educational real estate joint venture challenge with Pircher, Nichols & Meeks, awarding $3,000 to the winning student team.