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Ground thermal properties are the design basis of ground source heat pumps (GSHP). However, effective ground thermal properties cannot be obtained through the traditional thermal response test (TRT) method when it is used in the coaxial borehole heat exchanger (CBHE). In this paper, an improved TRT (ITRT) method for CBHE is proposed, and the field ITRT, based on the actual project, is carried out. The high accuracy of the new method is verified by laboratory experiments. Based on the results of the ITRT and laboratory experiment, the 3D numerical model for CBHE is established, in which the flow directions, sensitivity analysis of heat transfer characteristics, and optimization of circulation flow rate are studied, respectively. The results show that CBHE should adopt the anulus-in direction under the cooling condition, and the center-in direction under the heating condition. The influence of inlet temperature and flow rate on heat transfer rate is more significant than that of the backfill grout material, thermal conductivity of the inner pipe, and borehole depth. The circulating flow rate of CBHE between 0.3 m/s and 0.4 m/s can lead to better performance for the system.