There is an old adage that only three things matter to a real estate investor—location, location, location. Is the RICS 2023 Red Book update changing that?
The latest update introduced a new policy, to be implemented by April 2026, of mandatory valuer rotation, whereby individual valuers are rotated off assets after a maximum period of five years and valuation firms are rotated off assets after a maximum period of 10 years. While regularly refreshing valuers is no doubt good practice from a governance point of view, there may be some unintended consequences for real estate performance data.
Figure 1 shows, for CBRE’s UK assets, the standard deviation of asset level capital value growth in Q1 2025, split out by segment, for assets that did and did not see a change of valuer compared with Q4 2024. In most cases, the standard deviation on assets seeing valuer change is two to three times higher than that on those retaining their valuer.
This confirms the “eye test” we saw when charting asset level value change; assets where the valuer changed seemed to be disproportionately represented at the tails (both upside and downside) of the distribution. For example, only 33% of SE industrial assets in our sample had a valuer change in Q1 2025, but 65% of top and bottom ten assets saw valuers change (six of the bottom ten and seven of the top ten).
Figure 1: Standard deviation of asset level capital growth, Q1 2025, %
Source: MSCI Quarterly Index, CBRE Investment Management.
In other words, changing a valuer is more likely (though not always) to result in more extreme capital growth (both to the upside and downside) in the period following the valuer change, as the incoming valuer potentially takes a different view on key drivers of value, such as cashflow and yield assumptions. For the record, the average level of growth is comparable across the datasets; changing valuers is not overall especially accretive or destructive to value in aggregate, it “just” produces more extreme outcomes at the asset level.
Does this matter? Well, in a technical way, yes it really does. The chart above also includes the standard deviation of capital growth on all sold assets in the MSCI quarterly universe. As a reminder, purchases and sales are excluded from standing investments because they are not considered “like-for-like.” Yet the volatility in their performance (at least in this period) is comparable, if not lower, than that of assets seeing valuer’s change.
This is perhaps not that surprising. An asset undergoing a valuer change is not that dissimilar to a transacted asset, in the key aspect that it undergoes a change in whose opinion of its value matters—for one it is from old valuer to new, for the other it is from vendor to buyer. But this does beg the question: should assets undergoing valuer change be excluded, either automatically or according to user preference, from standing investments, and/or from data analysis products like MSCI’s Plus tool? Valuer change assets seem likely to dominate the extremes of asset distributions, potentially distorting analysis that is focussed on or sensitive to tail risk—such as might be relied on by real estate lenders for example.
If so, for how long should that exclusion apply? Transactions are excluded in the transacting period, but is it certain that all of the new valuer’s differential view will come through in the first quarter? Might the effect not be spread out over a longer period? And will this be concentrated? The RICS has allowed a transition period to April 2026 for valuer rotation to occur by—is it not likely that Q4 2025 and Q1 2026 will see a spike in rotations, potentially significantly distorting market data in those periods?
All of this assumes that our experience is not somehow a quirk, unique to us. Perhaps what is first required is a detailed market-level analysis of asset-level outcomes (appropriately anonymised) to determine whether and to what extent the pattern we have observed—which, in fairness, feels intuitively reasonable— is more broadly replicated. Such an information backdrop, regularly updated as more and more valuer rotations occur, can then inform the wider debate.
Valuer rotation has yet to be fully embedded, but it has already begun to produce the unintended consequence of introducing greater non-market-driven asset level volatility into valuation-based performance data, with implications for the usefulness of that data to market analysts. It is now up to the industry to work out how to mitigate this.
