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Does machine learning prediction dampen the information asymmetry for non-local investors?

    Jinwoo Jung Affiliation
    ; Jihwan Kim   Affiliation
    ; Changha Jin   Affiliation

Abstract

In this study, we examine the prediction accuracy of machine learning methods to estimate commercial real estate transaction prices. Using machine learning methods, including Random Forest (RF), Gradient Boosting Machine (GBM), Support Vector Machine (SVM), and Deep Neural Networks (DNN), we estimate the commercial real estate transaction price by comparing relative prediction accuracy. Data consist of 19,640 transaction-based office properties provided by Costar corresponding to the 2004–2017 period for 10 major U.S. CMSA (Consolidated Metropolitan Statistical Area). We conduct each machine learning method and compare the performance to identify a critical determinant model for each office market. Furthermore, we depict a partial dependence plot (PD) to verify the impact of research variables on predicted commercial office property value. In general, we expect that results from machine learning will provide a set of critical determinants to commercial office price with more predictive power overcoming the limitation of the traditional valuation model. The result for 10 CMSA will provide critical implications for the out-of-state investors to understand regional commercial real estate market.

Keyword : machine learning, office price, commercial real estate, prediction accuracy, information asymmetry, non-local investors

How to Cite
Jung, J., Kim, J., & Jin, C. (2022). Does machine learning prediction dampen the information asymmetry for non-local investors?. International Journal of Strategic Property Management, 26(5), 345–361. https://doi.org/10.3846/ijspm.2022.17590
Published in Issue
Nov 14, 2022
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This work is licensed under a Creative Commons Attribution 4.0 International License.

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