SECTION B (answer one question) 1. You have been instructed to assess the Investment Value of a two- storey grade A office building in the central business district of a regional UK city in North West England. The details of the two floors are as follows: Floor Passing rent Size (square metres) 900 900 Unexpired term on lease 1 279,000 288,000 2 years 3 years 2 All leases are on full repairing and insuring terms. To assist with your appraisal, the following facts and figures are available: . This property was recently refurbished and is not in need of further refurbishment. . You are aware of a comparable letting of a similar property with 2,100 square metres of usable space at a rent of 693,000 per annum on a ten-year full repairing and insuring lease with a rent review after five years. Market information includes the recent sale of a comparable office investment at a capitalisation rate of 5.5%. Currently, capitalisation rates are estimated to be about 0.5% higher than their long term average over the past 15 to 20 years. Forecasts of rental growth in the locality are around 2.5% per annum over the longer term but the forecasts for the next few years are that rental values will rise by 1.5% per annum for the next two years before rising to 2% per annum in years three and four and 2.5% per annum in year five and thereafter. Making all other reasonable assumptions concerning other inputs and fully annotating your answer, calculate an annual cash flow over the next ten years to determine the Investment Value, assuming a target rate of return of 7% per annum