Originally published winter 2019.

A player’s three-dart shooting average offers a clear metric that can be analysed to reveal the best strategic options – investment management has parallels.

Statistically, if a player’s three-dart shooting average is less than 80, they should aim at treble 19 rather than treble 20. In practice, amateur dart players usually average less than 80, but the vast majority still aim for treble 20. The three-dart shooting average is a simple, transparent, quantitative metric, the analysis of which can reveal strategic options that can lead to better outcomes. Is there an equivalent measure in real estate? If so, how can it be calculated? Can this measure also allow managers to communicate to investors how they intend to either deliver this return or even exceed it?

In darts, the player’s ‘return’ is a score, while in property investment, the investor’s return is from the cash flow. This cash flow is driven by the initial rent, rental growth, leases, costs and vacancies. Market pricing of these cash flows should therefore reflect differentials in expected future growth rates, costs and vacancies between markets and properties within markets. The market pricing of shopping centres, for example, has been marked down as growth expectations have fallen and higher expected future vacancies and costs are factored in. Industrial pricing, by contrast, has risen as a result of higher growth expectations and more optimistic cash flow assumptions for tenant retention and letting periods.