A model for determining the market rental rate for properties classified in the segment with a limited number of offers

Abstract

Purpose: The purpose of this paper is to develop a model for determining the rental income from fixed assets of an enterprise in an undeveloped market. Design/methodology/approach: The rental income is determined using the iteration method and the simulation method in the cost-based approach model. Findings: In this research, a model for market rental rate calculation in conditions of limited supply was developed. The model is based on the selection of the market rental rate, at which the present value of the cash flows from the rent of the surplus specialised and non-core assets of an enterprise will be equal to the predetermined market value of such property. Thus, the approximation of the cost of excess and non-core for a business property using cost and income approaches will allow the owner to return investments in the fixed assets of the enterprise that are not involved in the main business processes, and get the expected rate of return on such assets. When selecting the market rental rate, the uncertainty of the initial data of the model was taken into account by constructing scenarios using the simulation algorithm. Practical implications: The obtained value of the rate of return on equity for cash flow can be used in the calculation of the present value of cash flows of the rental income. Originality/value: The paper clarifies the market rental payment for property classified in the segment with a limited number of offers. The paper calculated the discount rate on the models of the CAPM and the WACC and received rental income for the transfer excess and non-core assets for rent.