Exercise 1: analysing comparable data

You are asked to assess Market Value for several office buildings in a town that has two office districts. District A is the prime location while District B is a secondary area with poorer growth prospects.

You collect the following evidence on lettings and sales to assist your valuations. In all cases, the leases in these buildings are on Full Repairing & Insuring (FRI) terms.

Comparable #1 is in district A and has a Net Internal Area (NIA) of 11,000 sq. feet. It has just let at 275,000 per annum and has just sold at a contract price of 5.15 million.

Comparable #2 is in district B and has a NIA of 12,500 sq. feet. It has just let at 262,500 per annum and was purchased for 3.5 million including costs.

Comparable #3 is in district A and has a NIA of 10,000 sq. feet. It has just let for 312,500 per annum on a five-year lease with a one-year rent-free period.

Comparable #4 is in district B and its NIA is 12,000 sq. feet. It has just let for 336,000 per annum on a six-year lease with an 18-month rent-free period.

a) Calculate the rent per sq. ft. of the new lettings for comparables #1 and #2.

b) Calculate the rent per sq. ft. and effective rent per sq. ft. for comparables #3 and #4 using the straight-line method of calculation.

c) Calculate net initial yields for comparables #1 and #2, adding purchaser costs at a rate of 6.8% to the reported contract price where necessary.

d) Discuss how we can calculate net initial yields for comparables #3 and #4?

Exercise 2: calculating MV using the data above

Assess Market Value for the following properties using the information gained in 1a, 1b and 1c. Estimate Market Rent, where necessary, and use a net yield appropriate for the district in question as a capitalisation rate. For each valuation, assume purchaser costs would be 6.8% of the contract price.

a) A newly let office in District A with a NIA of 9,500 sq. feet. The rent agreed was 237,500 per annum. (Hints: it is a rack-rented property; use the market rent and cap rate from the same submarket)

b) A newly let office in District B with a NIA of 18,000 sq. feet. The rent agreed was 378,000 per annum. (Hints: it is a rack-rented property; use the market rent and cap rate from the same submarket)

c) An office in District A that has a NIA of 10,500 sq. feet and which has four years of its current lease left to run. The contract rent for the lease is 250,000 per annum.

(Hints: it is a reversionary property; use the market rent and cap rate from the same submarket)

d) An office in District B that has a NIA of 11,500 sq. feet and which has two years of its existing lease left to run. The contract rent for the lease is 230,000 per annum. (Hints: it is a reversionary property; use the market rent and cap rate from the same submarket)