Property valuation in an economic context

Property Valuation : in an economic context......Page 1
Contents......Page 7
Preface......Page 11
Acknowledgements......Page 12
1.1 Introduction......Page 13
1.2 Microeconomic concepts......Page 14
1.2.1 Supply and demand, markets and equilibrium price determination......Page 15
1.2.2 The property market and price determination......Page 18
1.2.3 Location and land use......Page 28
1.3 Macroeconomic concepts......Page 37
1.3.1 The commercial property market......Page 38
1.3.2 Property occupation......Page 40
1.3.3 Property investment......Page 48
1.3.4 Property development......Page 63
1.3.5 Macroeconomic cycles......Page 67
Notes......Page 70
References......Page 71
2.2 What is valuation?......Page 73
2.2.1 The need for valuations......Page 75
2.2.2 Types of property to be valued......Page 77
2.2.3 Bases of value......Page 82
2.3.1 Property-specifi c factors......Page 85
2.3.2 Market-related factors......Page 89
2.4 Valuation mathematics......Page 92
2.4.1 The time value of money......Page 94
2.4.2 Yields and rates of return......Page 106
2.5 Valuation process......Page 113
2.5.1 Specifi c valuation standards......Page 117
2.5.2 Measurement......Page 118
References......Page 121
3.1 Introduction......Page 122
3.2 Comparison method......Page 123
3.2.1 Sources of data......Page 124
3.2.2 Comparison metrics......Page 130
3.2.3 Comparison adjustment......Page 134
3.3. Investment method......Page 137
3.3.1 Valuation of rack-rented freehold property investments......Page 140
3.3.2 Valuation of reversionary freehold property investments......Page 142
3.3.3 Valuation of leasehold property investments......Page 149
3.4 Profi ts method......Page 159
3.5 Residual method......Page 168
3.6 Replacement cost method......Page 177
3.7 Summary......Page 180
References......Page 183
4.1 Introduction......Page 185
4.2 Rental valuations at lease commencement, rent
review and renewal......Page 186
4.2.1 Rent-free periods......Page 188
4.2.2 Premiums and reverse premiums......Page 191
4.2.3 Capital contributions......Page 195
4.2.4 Stepped rents......Page 196
4.2.5 Short leases and leases with break options......Page 197
4.2.6 Turnover rents......Page 202
4.3.1 Landlord and tenant legislation......Page 205
4.3.2 Surrender and renewal of leases......Page 211
4.4.1 International fi nancial reporting standards......Page 214
4.4.2 UK fi nancial reporting standards......Page 217
4.4.3 Methods of valuing property assets for fi nancial reporting purposes......Page 219
4.5 Valuations for loan security......Page 224
4.6.1 Capital gains tax......Page 226
4.6.2 Inheritance tax......Page 234
4.6.3 Business rates......Page 237
4.7 Valuations for compulsory purchase
and compensation......Page 244
4.7.1 Compensation for land taken......Page 245
4.7.2 Severance and injurious affection......Page 247
4.7.3 Disturbance compensation......Page 251
4.7.5 A note on CGT and compensation for compulsory acquisition......Page 253
4.8 Valuation of contaminated land......Page 255
References......Page 258
5.1 Introduction......Page 260
5.2 A DCF valuation model......Page 263
5.2.1 Constructing a DCF valuation model......Page 264
5.2.2 Key variables in the DCF valuation model......Page 267
5.2.3 Applying the DCF valuation model......Page 274
5.2.4 Case study ƒ valuation of a city centre offi ce block......Page 281
5.3 Valuing contemporary property investments using
ARY and DCF valuation techniques......Page 285
5.3.1 Short leases and leases with break clauses......Page 287
5.3.2 Over-rented property investments......Page 289
5.4.1 Valuation accuracy, variance and uncertainty......Page 293
5.4.2 Sensitivity analysis......Page 298
5.4.3 Scenario testing and discrete probability modelling......Page 301
5.4.4 Continuous probability modelling and simulation......Page 303
5.4.5 Arbitrage......Page 308
References......Page 314
6.1 Introduction......Page 317
6.2.1 Property development activity......Page 318
6.2.2 Type and density of property development......Page 319
6.2.3 The timing of redevelopment......Page 322
6.2.4 Depreciation in the value of existing buildings......Page 324
6.3 Residual land valuation......Page 326
6.3.1 Case study ƒ valuation of a development site in Bristol......Page 327
6.3.2 Problems with the residual method......Page 330
6.3.3 Marriage gain valuations on merger of interests......Page 332
6.4 Residual profi t valuation......Page 334
6.5 Cash-fl ow land and profi t valuations......Page 338
6.5.1 Cash-fl ow land valuation......Page 340
6.5.2 Cash-fl ow profi t valuation......Page 342
6.6 Development risk......Page 347
6.6.1 Risk analysis......Page 348
6.6.2 Risk management......Page 357
Notes......Page 364
References......Page 365
7.1 Introduction......Page 366
7.2.1 Appraisal information and assumptions......Page 369
7.2.2 Appraisal methodology......Page 373
7.2.3 Risk analysis in property investment appraisal......Page 388
7.3.1 Business property appraisals......Page 391
7.3.2 Business property performance measurement......Page 394
7.4.1 Property funding......Page 395
7.4.2 Risk management in property fi nancing......Page 405
7.4.3 Indirect property investment......Page 406
Notes......Page 409
References......Page 410
Glossary......Page 411
Index......Page 417