The upward‐only lease is the dominant rental contract in the UK, while the turnover lease is widely used in the US retail sector. This paper compares and contracts the landlord rent options in these two leases, interpreting and extending the earlier simulation analysis of Booth and Walsh and of Hendershott and Ward. While the options are similar, the ability of the turnover rent lease to induce greater landlord effort and co‐operation between tenants and the landlord suggest that both UK investors and UK consumers would be well served by greater use of the turnover lease.
The paper describes the use of hedonic analysis to examine the impact of the South Yorkshire Supertram on house prices in Sheffield. The approach was distinguished by the use of asking prices rather than transaction prices, the use of dummy variables to capture neighbourhood quality effects and the use of a GIS to calculate continuous distance variables. Compared with similar previous studies the equations performed well and identified, for the first time in a British context, a small, discrete transport induced price effect. Supertram initially depressed the prices of nearby houses but prices show signs of recovery. Further research is needed to examine the longer term impact of Supertram on the housing market.
Modernization of a railway line connecting the urban and sub‐urban areas will normally result in a shift of the population from urban to suburban areas. This will affect the price gradient of residential prices of two connected stations on the railway line. The actual effect cannot be theoretically deduced. Results of empirical studies in the past are not conclusive. Lack of good quality data is one of the many reasons. This paper seeks to contribute to the understanding of this issue by a case study in Hong Kong. The KCR (Kowloon‐Canton Railway) runs from the CBD of Hong Kong to its sub‐urban area. Since August 1982, the trains have been powered by electricity instead of diesel. The modernization of the KCR has greatly improved its speed and capacity and has contributed to major improvement in public transportation between the urban and suburban areas. To assess the effects of this change, the price gradient of residential units between an urban and a sub‐urban station will be estimated from transaction records of properties in these two chosen locations on the railway line. Price influencing effects are controlled either by including them in the model, restricted sampling or other adjustment techniques. This method allows the net change in the price gradient before and after the improvement to be assessed. The results strongly suggest that improvement in public transportation have a negative effect on the price gradient along the railway line.
This article discusses the future of property valuation data provision by examining a new data initiative designed to increase valuation data availability known as a National Valuation Evidence Database (NVED). This NVED will be an on‐line source of comparable evidence which, when combined with the National Land Information System, will provide valuers with a single source of on‐line valuation evidence. It is argued that the future of valuation data provision will revolve around these two initiatives and that it is up to property professionals to take the lead in encouraging these initiatives, to indicate to their clients a progressive attitude towards property service provision.
This study utilises a large sector‐regional real estate data set, based on actual properties in more than 187 locations in the UK over the period 1981‐1995. This is subjected to a portfolio analysis using an algorithm based on mean absolute deviation as the measure of risk. The algorithm is especially effective when the number of assets is greater than the number of time periods, as is typically the case within a real estate portfolio analysis. In addition, such a large data set enables a comparison of the performance of several “conventional” regional classifications with one based on economic (Functional) criteria. The general conclusion to be drawn from this is that diversification by sectors across a Super Region would have outperformed almost all other diversification strategies. However, in comparing Functional grouping with this Super Regional approach, this economically based classification produced results that were equally good.
While numerous studies have been carried out in the US to determine the character and scope of the effects of contaminated, threatened or “stigmatized” properties on the terms and availability of debt financing, little appears in the published literature dealing with the attitudes, policies and requirements of equity investors. Hence, the extent of opposition from both institutional lenders and equity investors toward contaminated property is still uncertain. This paper summarises the results of parallel studies undertaken within New Zealand (NZ) and the USA to answer the question of how those who lend on, and invest in, property affected or impacted by contamination perceive the risks associated with this type of investment and evaluate its impacts. Of particular interest are the perceived effects of on‐site contamination on property investment and its financing.
This work shows that it is possible to link various economic and property attributes to the value of a commercial property over time in a particular market, and arrive at a valuation pattern which can be used to give a short‐term forecast of valuation fluctuations using longitudinal rather than cross‐sectional analysis. Shows that it is possible to do this by using a novel process we have termed “backtrack valuations” or “backtracking”. The method proposed creates a simulated historic record of valuations, from which a neural network can be trained and then used as a model to estimate a forward trend. This is allied to the requirement in the RICS Appraisal and Valuation Manual (Red Book) whereby the valuer may be instructed to provide Estimated Realisation Price which depends on completion taking place on a future date as compared with Open Market Value where achievement of completion is assumed at the date of valuation. There is also the new definition of “Forecast of Value” in the RICS Red Book and we suggest that the valuer would find the technique of forecasting from backtracked time series of interest and use in both these particular circumstances. The source of data for the investigation was Richard Ellis, International Property Consultants, who provided monthly valuations of 16 major commercial properties in Central London. Our forecasts are presented alongside the subsequent Richard Ellis valuations. The results confirm that in the conditions obtaining in this market, it is feasible to predict capital valuations in the short term. The method is being extended and tested in the wider commercial markets.
This paper considers the impact of the recent minimum funding legislation on UK Pension Funds and how this may change the way in which property investment is regarded. The principles of investment diversification are re‐examined in the light of the MFR “matching” asset classes and the historic relationships between UK property and other asset classes are considered in some detail. Finally, the traditional “peer” approach to strategy adopted by many UK Pension Funds is critically examined to determine its continuing validity in the new minimum funding environment. These results are then extended to see what types of fund may find it appropriate to increase their property weightings.
The article is based on a study of 100 appraisal reports from the period 1980‐1996, covering a full property cycle. A number of aspects related to uncertainty were investigated. Among the results are: The appraiser often used both a sales comparison and an income method. Both methods usually led to very similar results, probably because the appraiser used an iterative procedure to make the results converge. During the boom years, the value was usually presented as a point estimate or a narrow range. After the crash, point estimates are unusual and wider ranges dominate. Sensitivity analysis were almost never used during the boom. Thereafter it can be found in about 50 per cent of the reports. During the boom it became more common to make explicit reservations stating that the appraisal only concerned the market value “now”, and that no statement is made about the future market value. The results are in line with observations from other countries pointing to the neglect of uncertainty during the boom years. Finally it is recommended that at least qualitative information should be given about the strength of the evidence and about the probability distribution of actual prices. How the values on the relevant market have developed during the last ten years should be presented so that the client can judge the variability of the market value.
Research undertaken by the authors over the last two years has revealed a number of problems in valuing non‐market, non‐investment properties in the public sector. The first part of the article draws together some of the literature in the area of public sector asset valuation and management. This is intended, first, to highlight current thinking about the issues involved in the valuation exercise, second, to focus on some of the unresolved aspects and, finally, to suggest areas for further consideration to help resolve these.The second part of the article provides an introduction to, and critical examination of, the valuation methodology commonly used to value specialised property assets. Possible alternative approaches are suggested, which may better enable authorities to assess the performance of their assets and integrate these into the management processes.
The potential application of data mining techniques in the extraction of information from property data sets is discussed. Particular interest is focused upon neural networks in the valuation of residential property with an evaluation of their ability to predict. Model testing infers a wide variation in the range of outputs with best results for stratified market subsets, using postal code as a locational delimiter. The paper questions whether predicted outcomes are within the range of valuation acceptability and examines issues relating to potential biasing and repeatability of results.
Some particular valuation problems are raised by the development of buildings which are protected for reasons of historical or architectural merit. The experience of Plymouth Development Corporation in seeking to secure the regeneration of the Royal William Yard is a case in point. The Corporation was established in 1993 for a period of five years and one of its principal tasks was to find new uses for the former Royal Naval Victualling Yard which contains ten buildings scheduled as ancient monuments. The Corporation prepared a development strategy for the Yard and adjacent areas incorporating improved access and parking and a mixed‐use brief for other buildings. A compulsory purchase order was issued and, following a lengthy public inquiry, it was confirmed. MEPC was subsequently selected as lead developer with the anchor use being a factory outlet centre. Even with MEPC’s involvement there was a need for a significant level of gap funding. At the end of the Corporation’s life, in March 1998, the deal with MEPC has still to be completed and responsibility passed to English Partnerships.
The paper proposes a multivariate approach to unsmoothing the valuation‐based property return indices, utilising information embedded in other variables implied by their underlying economic relationship and cointegration relationship. The approach is then applied to the UK property return indices, and smoothing in the indices is detected and corrected.
This paper forms part of a larger funded research project conducted jointly by the University of Reading and Oxford Brookes University. The purpose of the project was an investigation of negligent valuation and advice, in relation to commercial property lending. A major interview exercise to obtain data relating to commercial loan valuation practice was undertaken. This work, and its initial results, have been reported elsewhere and do not form the main subject matter of this paper, but are referred to. The second part of this project derived from a comprehensive literature search in the area of setting up of a data‐base of sources for research and possible commercial exploitation. It is the database, the rationale for its creation, its features, and prospects for use which are the subject matter of this paper. The paper considers the background to the most recent decisions; the importance of the case law in understanding valuers’ liability exposure; the compilation of the database; the intentions as to its operation and use; and conclusions on the extent to which the project’s objectives regarding the database have been achieved and its potential for further development in the future.
Examines the phenomenon of cross‐border property lending and some issues regarding lending procedures and decision‐making processes in the context of the relationship between lender and professional adviser. Commences by placing these procedures and processes in the context of the development of cross‐border European property investment and finance. The UK has been a popular destination for overseas investors and lenders over the last decade and is therefore used as a case study to examine the additional institutional risk that overseas lenders may face when operating outside of their own country and obtaining advice from home professionals. The research identified a lack of clarity in roles and relationships between lender and adviser, difficulties in communications both internally and between overseas branches and headquarters and failures in provision and interpretation of advice. Concludes by identifying the issues which may need to be addressed generally by lenders and their advisers, when lenders are operating in overseas markets.
Occupiers of offices in Birmingham are faced with four main problem areas: organisation evolution; location; new working practices; and availability of office supply. This paper is based on a comprehensive survey of office occupiers within Birmingham’s office core. It focuses specifically on the implementation of new working practices, information technology and management techniques. Emphasis is placed on the resultant effect for occupier demand. Development of new office buildings has proved to be most successful within the city centre especially following the popularity of the Brindley Place development located outside the traditional CBD. The paper shows that, although, the demand for large floorplated buildings is strong, occupiers are seeking specifications which reflect their organisation’s structure and which also have the ability to utilise future IT systems. As a consequence of the limited supply within the city core, occupiers have often opted to take refurbished space in more secondary locations which attempt to meet their immediate needs. However, does the widespread use of IT still provide an advantage in business and does its use require the most modern and largest buildings in the CBD? The results of this research reveal insight into the views of office occupiers which could be valuable for commercial office developers and investors.
Money illusion is a bias in the assessment of the real value of economic transactions, induced by their nominal evaluation. By definition, money illusion may only be manifested in the presence of inflation. This paper presents the results of an experiment which shows that the actual behaviour of subjects departed from theoretical expectations and that the subjects failed to recognize the underlying real values and instead made nominal evaluations. The evidence has the further implication that, in the absence of some house price escalation, there may be a tendency for vendor’s asking prices to be “sticky”. Thus, in these circumstances the asking price of the property will tend to function less well as a signal of relative scarcity in the marketplace.
