Preface xiii Acknowledgements xv PART A PROPERTY VALUE AND PROPERTY VALUATION 1 1 Microeconomic Concepts 3 1.1 Supply and demand, markets and equilibrium price determination 3 1.2 The property market and price determination 6 1.2.1 Rent for land 6 1.2.2 Land use rents 8 1.2.

3 Land use intensity 12 1.3 Location and land use 14 1.4 The economics of property development 22 1.4.1 Type and density of property development 22 1.4.2 The timing of redevelopment 25 Notes 28 References 29 2 Macroeconomic Considerations 31 2.1 The commercial property market 31 2.

2 Property occupation 33 2.3 Property investment 34 2.4 Property development 43 2.5 Property and the wider economy 44 References 48 3 What is Property Valuation 49 3.1 Introduction 49 3.2 The need for valuations 50 3.2.1 Types of property to be valued 52 3.

2.2 Bases of value 57 3.3 Determinants of value 60 3.3.1 Property-specific factors 60 3.3.2 Market-related factors 66 3.4 Valuation procedures 69 3.

4.1 Terms of engagement 71 3.4.2 Inspections and investigations 71 3.4.3 Valuation report 73 3.5 Measurement 73 Appendix - Inspection checklist 76 Notes 81 References 81 4 Valuation Mathematics 83 4.1 Introduction 83 4.

2 The time value of money 84 4.2.1 Single period investments 85 4.2.2 Multi-period investments 86 4.2.3 Tax 93 4.3 Yields and rates of return 94 4.

3.1 Yields 95 4.3.2 Rates of return 96 4.3.3 Yields and rates of return 98 References 99 PART B VALUATION METHODS 101 5 Comparison Method 103 5.1 Introduction 103 5.2 Sources of data 104 5.

3 Comparison metrics 106 5.3.1 Relative value of retail ground floor ''zones'' 107 5.4 Comparison adjustment 110 References 114 6 Investment Method 115 6.1 Introduction 115 6.2 All-risks yield (ARY) methods 117 6.2.1 Valuation of rack-rented freehold property investments 117 6.

2.2 Valuation of reversionary freehold property investments 119 6.2.3 Valuation of leasehold property investments 127 6.2.4 Example: ARY Investment method 134 6.3 Discounted cash-flow (DCF) methods 135 6.3.

1 A discounted cash-flow valuation model 136 6.3.2 Applying the DCF valuation model 142 Notes 157 References 157 Further reading 158 7 Profits Method 161 7.1 Introduction 161 7.2 Method 162 7.3 Example of a profits method valuation 166 7.4 Summary 169 Notes 170 References 170 8 Replacement Cost Method 171 8.1 Introduction 171 8.

2 Method 172 8.3 Application 178 8.3.1 Valuation of an owner-occupied property for accounts purposes 178 8.3.2 Valuation for insurance purposes 178 8.4 Issues 178 8.4.

1 Definitional problems 179 8.4.2 Methodological problems 181 8.5 Summary 184 Notes 185 References 186 9 Residual Method 187 9.1 Introduction 187 9.2 Conventional residual land valuation 188 9.3 Problems with the residual method 199 9.4 Cash-flow residual model 202 References 206 10 Automated Valuation Models and Computer-Assisted Mass Appraisal 207 10.

1 Introduction 207 10.2 Method 207 10.2.1 Simple linear regression (dependence of one metric variable on another) 208 10.2.2 Multiple linear regression (dependence of one variable on two or more variables) 211 10.3 Example 215 10.3.

1 Data 215 10.3.2 Descriptive statistics 216 10.3.3 Simple linear regression 216 10.3.4 Multiple linear regression 220 10.4 Multiple regression analysis: Research and applications 226 10.

4.1 Computer-assisted mass appraisal 228 10.4.2 Automated valuation models 229 10.5 Advantages and disadvantages of regression-based valuation 230 Notes 231 References 231 PART C VALUATION APPLICATIONS 233 11 Lease Pricing 235 11.1 Introduction 235 11.2 Lease incentives 236 11.2.

1 Rent-free periods 237 11.2.2 Capital contributions 241 11.2.3 Premiums and reverse premiums 242 11.3 Alternative lease arrangements 246 11.3.1 Stepped rents 246 11.

3.2 Turnover rents 247 11.3.3 Short leases and leases with break options 249 11.4 Valuations at rent review, lease renewal and lease end 252 11.4.1 Rent reviews 252 11.4.

2 Surrender and renewal of leases 253 11.4.3 Compensation for disturbance and improvements 255 11.4.4 Example 1 256 11.4.5 Example 2 259 Notes 262 References 263 12 Valuations for Financial Statements and for Secured Lending Purposes 264 12.1 Valuing property for financial statements 264 12.

1.1 Financial reporting standards and valuation bases 265 12.2 Methods of valuing property assets for financial reporting purposes 272 12.2.1 Example valuations 274 12.3 Valuations for lending purposes where the loan is secured against commercial property 279 12.3.1 Example 281 Notes 285 References 286 13 Valuations for Taxation Purposes 287 13.

1 Capital gains tax and corporation tax 287 13.1.1 Grant of a long lease out of a freehold or long leasehold interest 294 13.1.2 Grant of a short lease out of a freehold or long leasehold interest 295 13.1.3 Grant of a short lease out of a short leasehold interest 296 13.2 Inheritance tax 297 13.

3 Business rates 299 13.3.1 Rental comparison 302 13.3.2 Profits method 303 13.3.3 Contractor''s method 304 Note 306 References 306 14 Valuations for Compulsory Purchase and Compensation 307 14.1 Compensation for land taken (compulsorily acquired) 308 14.

2 Compensation for severance and injurious affection 311 14.2.1 Compensation where part of an owner''s land is acquired 311 14.2.2 Compensation where no land is taken 314 14.3 Disturbance compensation 315 14.3.1 Case study 316 14.

4 Planning compensation 317 14.4.1 Revocation, modification and discontinuance orders 318 14.4.2 Purchase notices and blight notices 318 14.5 A note on CGT and compensation for compulsory acquisition 319 Notes 320 References 321 15 Specialist Valuations 322 15.1 Operational entities or ''trade-related'' properties 322 15.1.

1 Hotels, guest houses, bed & breakfast and self-catering accommodation 322 15.1.2 Restaurants, public houses and nightclubs 324 15.1.3 Care homes 328 15.1.4 Petrol filling stations 330 15.1.

5 Student accommodation 331 15.1.6 Serviced offices 332 15.1.7 Data centres 335 15.2 Valuation of contaminated land 335 15.3 Synergistic value 339 15.3.

1 Physical merger 339 15.3.2 Legal merger 339 15.4 Special Purpose Valuations 340 15.4.1 Charitable Valuations 340 15.4.2 Local authority disposals of land for less than best consideration 341 Notes 341 References 342 16 Investment Valuations - Further Considerations 343 16.

1 Short leases and leases with break clauses 343 16.2 Over-rented property investments 346 16.3 Valuation accuracy, variance and uncertainty 349 16.3.1 Valuation accuracy 349 16.3.2 Valuation variance 350 16.3.

3 Valuation uncertainty 352 16.3.4 Sensitivity analysis 353 16.3.5 Scenario testing and discrete probability modelling 356 16.3.6 Continuous probability modelling and simulation 359 16.3.

7 Arbitrage (tenant yield approach) 363 Notes 368 References 369 PART D APPRAISAL 371 17 Investment Appraisal 373 17.1 Introduction 373 17.2 Appraisal information and assumptions 375 17.2.1 Rent and rental growth 375 17.2.2 Target rate of return 377 17.2.

3 Holding period 380 17.2.4 Exit value 381 17.3 Appraisal methodology 381 17.3.1 Payback method 381 17.3.2 Yield 382 17.

3.3 DCF methods of investment appraisal 383 17.3.4 Example 393 17.4 Risk analysis in property investment appraisal 395 17.5 Financing property investment 398 Notes 401 References 401 18 Development Appraisal 403 18.1 Introduction 403 18.2 Conventional residual profit appraisal 403 18.

2.1 Profit as a percentage of cost 405 18.2.2 Development yield 406 18.2.3 Criticisms 406 18.3 Cash-flow profit appraisal 408 18.3.

1 Criticisms 412 18.4 Development risk 413 18.4.1 Risk analysis 414 18.4.2 Risk management 427 18.5 Development finance 429 18.5.

1 Borrowers of development finance 429 18.5.2 Type of finance 430 18.5.3 Sources of development finance 431 18.5.4 Duration of funding 432 18.5.

5 Typical development finance structures 433 18.5.6 Gearing 439 18.5.7 Risk management in property financing 439 18.5.8 Finance accounting 441 18.5.

9 Sales revenue 444 Notes 452 References 453 Glossary 454 Index 460.