Armed with a single phrase it is possible to calculate the angles of any right angled triangle from only two other pieces of information.

The real estate industry also provides two pieces of information: the history of rents and the current yield. But are these two series sufficient to calculate expected returns? The calculation seems simple: take the current yield, add the long-term change in rents and you have a long-term expected return. The problem is that there is simple, and there is too simple.

The first issue is that rent is not income and income is not cash flow, so how do you get from a rent series to a cash flow? Secondly, is the yield the discount rate for the rent or the net operating income? In-perpetuity is a long time over which to capitalise the wrong number, or capitalise at the wrong rate!

The performance measurement industry seemingly provides the missing required additional data on deductions from rent. The problem is matching the measures reported to the rent provided. For example, should lease incentives and/or revenue costs be deducted from a prime rent? Are capital costs the same for prime buildings as older buildings?