Retail PropertyRetail property comes in many shapes and sizes from the single freestanding shop-residence of old to a Westfield Regional Centre and many in between. The majority of retail centres are held under via a single owner/investor and lease the various retail areas to tenants under formal lease agreements of varying terms. However, 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. It is common that tenants pay their percentage share of municipal charges and maintenance. The rough rule for shopping centres in Australia is, the bigger the centre the more the tenant is to pay in the way of outgoings contributions under his lease agreement. The resultant Net Profit, generally calculated by the Valuer, arising from the complex has a market derived yield applied to it which in turn provides a market value. Where there are vacancies within a centre the Valuer, in this calculation, will assume the complex fully let, estimate the recoverable and non recoverable outgoings that a potential tenant will pay to arrive at the Net Profit. However he will deduct from the capitalised market value the cost to find those tenants including any rent free or fit-out contribution incentives that the retail market is offering at the time.
ie: Poor retail market = larger incentive package Conversely Strong retail market = small to no incentives.
In addition to capitalising the calculated Net Profit, the second valuation method consists of a number of again calculated dollar values, such as:
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, more likely it will increase. 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.
It’s a case of watch this space.
Tel: (07) 3221 2444 Fax: (07) 3221 2497 Email: admin@australianvaluers.com.au
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