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Retail Property Valuations – Assessing a market value for a retail property
Retail Property comes in many shapes and sizes from the single freestanding shop & dwelling, attached strip shops to a Westfield Regional Centre and many in between.
- The majority of retail centres are held under a single owner/investor and lease the various retail areas to tenants under formal lease agreements of varying terms;
- There are a number of strata retail complexes where the complex is included within a Strata Plan with each lot identified by lot number and floor area;
- Similar to going concern properties, retail centres have incomes from the rental paid by the tenancies and expenses that are payable by the owner/investor that fall outside of the tenant responsibility (non-recoverable outgoings);
- It is common that tenants pay their percentage share of municipal charges and maintenance;
- The rough rule for shopping centres in Australia is the larger the centre the greater amount of outgoings the tenant is to pay under their lease agreement;
- Similarly to commercial, the passing rental is compared to comparable recent leasing evidence to ascertain whether it is in line with the market;
- The resultant Market Net Income generally calculated by the Valuer, arising from the complex has a market derived yield applied to it which in turn provides a market value.
In addition to capitalising the calculated Net Profit, the second valuation method consists of a number of again calculated dollar values, such as:
- Dollar value per square of improved land
- Dollar value per square metre of Gross Floor Area
- Dollar Value per square metre of Net Lettable Area
The challenge for Retail
The risk profile for Retail is interesting as all Retail, no matter the shape and size is changing worldwide and presently it’s reasonable to say that that change is not going to slow.
The challenge for Retail is to re-invent itself, by making it easier for consumers to buy. Fundamentally on-line retail makes it very easy for consumers to purchase goods and literally have them delivered to their front door.
It is the case that some retailers will always need shop space and consumers will always need to get in the car and go touch and feel. However for those Retailers competing with the on-line world, they need to join that on-line world now.