19 Apr 2023

European Valuation Practicesinitial findings

Leonie Koerhuis Msc, PhD student Tias Nimbas Bus. SchoolDr Paul Nelisse FRICS RT, Tias Nimbas Business SchoolProf. Dr. Aart Hordijk MRICS, Tias Nimbas Business School

contact: a.c.hordijk@tiasnimbas.edu

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Previous Research

• European Valuation Practice, Alistair Adair et al, 1995

• Real Estate Valuation in Global Markets, Appraisal Institute, 1996

• Overviews by major Valuation Firms like DTZ, JLL, Colliers, etc., mostly

as of 2000 onwards

Conclusion: Relatively Outdated

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Why ?

• Improve Transparency

• Crossborder Comparison

• Higher Profile of the Valuation Profession

• Stakeholders Demand

• Need for Dynamic System, to be updated regularly

• “Lonely Planet” of Valuation

• Looking for the “True” Capital Growth

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For Whom ?

• Practitioners

• Academics

• (International) Investors

• Auditors

• Financial Institutions

• ALM Studies

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What ?

• Compact Survey, focus on main items

• Similarities and Differences in this presentation :

- Market Value

- Property Rights

- Measurement

- Lease Conditions

- Operating Costs

- Transfer Costs

- Valuation Methods

- Reliability of market evidence

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Contributing Countries so far

France

Germany

Italy

Netherlands

Portugal

Russia

Spain

UK

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Market Value

Do you apply Market Value (Red Book definition)?

67%

33%

Always

Mostly

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Do you use any Other / Alternative Definitions?

• Value in Use

• Liquidation Value

• Fiscal Value

• Charte de l'Expertise en Evaluation Immobilière

• Fair Value

• Private Purchase

• Verkehrswert

• No

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Property Rights Availability

Information on property rights is available from the Land Registry

50%50%

Yes, all information

Only limited information

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Freehold

Property is held freehold

17%

83%

Always

Mostly

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Leasehold

Property is held leasehold

83%

17%

Sometimes

Never

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The Regular Approach to Measurement of Surface is:

• Gross External Area

• Gross External Area - Warehouse

• Kind of Gross External Area for Construction Permits

• Gross Internal Area

• Net Usable Area

• Net Usable Area for Leasing

• Net Internal Area

• ITZA (Retail)

• GLA (Gross Leasing Area)

• Net Leasable Area

• Depending upon the Asset Type

• Depending upon which of the 16 Bundesländer

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Regular Contractual Lease Period

0 5 10 15 20

France

Spain - office

Portugal - office

Italy - residential

Spain - residential

Netherlands

Portugal

Portugal - retail

Italy - commercial

Spain - retail

Italy - hotels

UK

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The following Costs are Incurred by the Tenant / Landlord:

0% 20% 40% 60% 80% 100%

Local taxes

Taxes over rent

Insurance

Internal repairs

Maintenance

Repairs to the structure

Letting fees (including rent review costs)

Services energy

Services non energy

landlord

landlord and tenant

tenant

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Transfer Costs

Transfer Costs are in the following Ranges:

• Stamp Duty / Transfer Tax: 0.8% (France) - 7.0% (Spain)

• VAT: 8.0% (Spain) - 21.0% (23% in 2011, Portugal)

• Real Estate Agent: 0.35% (Portugal) - 4.0% (Italy)

• Notary Fees + Registration: 0.2% (Spain / Portugal) - 6.2% (France)

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Income Approach to Market Value

• Calculation Components (i.e. Rental Income, Yield) are similar

• Usually 10 or 15 Years DCF

• Notable Difference: due to Full Repair Leasing in UK, therefore in the UK most emphasis on Net Yield

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Which sources are available for comparable

investment and rent transactions? What is the quality of each source?

0 0,2 0,4 0,6 0,8 1

inhouse database

third partydatabase

propertymagazines

land registry

informal network

No

Yes, but poor

Yes, moderate

Yes, good

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Main Similarities and Differences

• Differences

- Different Lease Lengths

- Operating Costs

- Stamp Duty / Transfer Costs

• Similarities

- Valuation Methods

- Underlying Variables

- Judgement of Property Magazines Relevancy

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Conclusions and next steps

• Further research necessary

• Expansion with more countries

• In-depth analysis of the data

• Quantification of the differences

- measurement : use of EU NEN 2580 as a norm to adjust space

- operating costs : UK as the starting point to adjust

- transfer cost : once of correction on the investment

• Qualitative

- good – poor information : risk premium on the cap/discount rate (?)

- lease length : effective lease length and difference in risk premium (?)

Main goal : looking for the “true” capital growth