Sensitivity analysis


Hi all,

When you’ve done a DCF valuation of an office property, what would you suggest as the main sensitivity parameters to make sensitivity tables in Excel? Also, maybe a quick refresher on the most efficient way to make sensitivity tables using Excel?

Thanks in advance!

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For DCF valuation I would consider rent and occupancy as two main variables, then do a two-way analysis as shown in below image.


In the image, the impact of construction cost and rent are assessed on IRR. You could do a similar table for rent and vacancy and assess its impact on the value.

You should probably also consider few other variables for sensitivity analysis depending on the context of the valuation.

The problem with Excel in-built sensitivity analysis is that both the input and output should be on the same sheet, otherwise it doesn’t work. And it is not advisable to build real estate valuation model in one sheet.

Hope this helps.

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