SOBE Commercial Surveyors and Valuers
Great Investments Ltd Portfolio Valuation Relating to Properties: Units 1 – 4 Bankside Unit 5 Bankside Unit 10 Bankside As at 1st December 2014
Prepared on Behalf of SOBE Upon Instructions from Great Investments Ltd Prepared By: Winnie Machogu @00247970 1st December 2014
Contents: 1. Basis of Valuation 2. The Property 3. Yield 4. Valuation APPENDIX 1. Building Report 2. Building Report 3. Building Report 4. Building Report 5. Surrender and Renewal Calculation 6. Freehold Valuation Unit 10
The Directors Great Investments Ltd Manchester
1st December 2014 Dear Sirs,
Great Investments Ltd, Portfolio Valuation Relating to Properties: •
Units 1 – 4 Bankside
•
Unit 5 Bankside
•
Unit 10 Bankside
As at 1st December 2014 1) Basis of Valuation: Upon instructions from the client, Great Investments Ltd we have undertaken a freehold and leasehold Market Valuation for a proposed sale of the entire portfolio, namely: •
Units 1 – 4 Bankside
•
Unit 5 Bankside
•
Unit 10 Bankside
1.1
The properties are being held for investment purposes by the client.
1.2
The properties are being valued on the basis of Market Value, in accordance with the RICS Valuations Standards. Market Value is defined as: the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after
proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. (RICS Valuation Standards, 2014, p.9) 1.3
Tenure: The valuation relies on the tenancy details provided by the client which is as follows: •
Lease: Units 1 – 5 are freehold properties let out on Full Repairing and Insuring (FRI) leases. The aforementioned units possess different terms.
•
Tenure: Unit 10 is held at long leasehold for a term of 75 years with an unexpired term of 51 years at a ground rent of £1,000 with 25 year reviews.
2) The Property: 2.1
Location:
Bankside Avenue
Unit 10
Units 1-4 Bankside Business Centre Car Parking
Units 6-9
Unit 5
Figure 1. Layout of Bankside Business Park
Location is the most important factor that a property investor would consider when buying an industrial property. The subject properties are located in Bankside Business Centre on Bankside Avenue, Trafford Park, in Greater Manchester. The business centre is designed for multiple occupations and according to the indicative layout, units 1 to 4 Bankside are distributed within a terrace of industrial units, unit 5 Bankside is a detached warehouse, units 6-9 Bankside are a terrace of industrial units whilst unit 10 Bankside is a
detached industrial unit. As this is a portfolio valuation, it is noted that the properties being valued are: •
The industrial units of Units 1 to 4 Bankside
•
The warehouse is Unit 5 Bankside
•
The head leasehold interest is Unit 10 Bankside
2.2 All the units are of steel portal frame construction with full brick elevations and a corrugated steel roof incorporating translucent panels for light. The property is in close proximity to Manchester City Centre and has close proximity of Junction 10 of the M60 which in turn links to the M62. 2.3
Service Charge: For the purpose of this report, we assume, based on Bankside Business Centre being an estate of multiple occupation, that there is in place provision of a service charge within the lease agreements of each tenant.
2.4
Lease terms: The Full Repairing and Insuring leases in place means that the tenants are responsible for the maintenance and repairing of the buildings they occupy during the term of their lease leaving the landlord investor with a clear financial return. The standard lease terms for the properties let in the early years i.e. 2001 and 2003, were for long periods. This suggests that the economic market was reliable and stable meaning tenants were ready to accept long leases ranging from 10-15 years. From 2011 to 2013, there appears to be a low tenant demand for the properties being valued because the standard leases were shorter ranging from 3 – 6 years, though Unit 4 is an exception, with the tenant occupying a 12 year lease from 2013.
2.4
Covenant strength: The strength of the leasehold on each unit is affected by the strength and quality of the tenant. A good quality tenant is regarded as one that possesses a good reputation and reliable finances to minimize the threat of rent arrears. In most cases, quality tenants would be willing to agree to long leases meaning the investor can expect regular income over a specified long period. The current tenants are assumed to be small
scale private businesses and we advise in future the investor assesses and researches the reliability of potential tenants before entering into agreements. 2.5
Size of premises: The properties being valued range from 200 m2 to 300m2 for the industrial units and 750m2 for the warehouse unit. The portfolio offers a good rental potential to an investor, due to the varying rental incomes that can be achieved based on their size.
3) Yield : In arriving at the yield, we have relied on a series of comparable lettings and sales of similar industrial/ warehouse units in the same location as the portfolio of properties. •
Comparable Unit 2 (appendix 1) is a Freehold warehouse unit that was recently sold at £215,000 on 30/05/2014. M17 1DB, size: 467m2,
•
Comparable Unit 3 (appendix 2) is a warehouse leasehold transaction that occurred 2 days after comparable unit 2 was sold. It is a 5 year term at a rent of £26,309 on 1/06/2014, M17 1SN size 603m2
•
Comparable Unit 1 (appendix 3) is a short-term lease for 18 months at £20496pa. on 15/11/2014, M17 1AY, size 363m2
•
Unit 0 represents Unit 3 Bankside, which is the most recent leasehold transacted (15/10/2014) within the portfolio of properties owned by the client.
Comparable
Area m2
Letting per m2
0 1 2 3
275 363 467 603
£55 £56.46 £50.01 £43.56
Sold: Market Value
£215,000
Date 15/10/2014 15/11/2014 30/05/2014 1/06/2014
Using quantum allowance as a guide, we assume the rental value for comparable 2 to be £50.01/m2 i.e. lower that £56.46 but higher than £43.56. Hence: 56.46 + 43.56
= 50.01
2 Therefore we can calculate the yield for comparable unit 2 using this rate as shown below:
Full Rental Value: 467 m2 x £50.01/ m2
=
£23,354.67 Say £23,300 pa.
Yield
=
23,300 / 215,000 x 100 10.84%
Say 11%
Based on the assumed transaction, the freehold yield of a similar class of properties i.e. warehouses and industrial units are 11%. The high yield is satisfactory as it reflects the greater rate of wear and tear associated with industrial/ warehouse units and early obsolescence due to shifting trends (Millington, 2000). 4) Valuations: 4.1
Unit 1 Andy’s Tools
5 yrs from
£12,500
FRI terms
1.04.2012 Gross Internal Area: 250sq m Tenancy Schedule Commentary: •
The tenant, Andy’s Tools is assumed to be a small scale builder’s merchant occupying the premises on a 5 year lease with no rent reviews.
•
The tenant is liable for the full repairing and insuring of the unit in occupation.
•
As of 1st December the tenant has 29 months or 2.4 months left on the lease.
Term: £12,500 * YP 2.4 years @ 10%
2.04472
£25,559
7.07672
£97,305
Reversion: FRV: £55/ m2 x 250m2 £13,750 * YP (perp.) def. 2.4 years @ 11%
£122,864 Capital value
Say £122,900
Valuation Commentary: The 10% yield is used in the term valuation because the current rent is certain and fixed for the duration of the lease. In reversion, 11% is used because the valuer is cautious that as the
tenancy reaches expiry the property becomes less favourable to the investor due to there being no agreement to renew the lease and the property is at risk of either being left vacant due to the tenant terminating the lease or the tenant holding over. 4.2
Unit 2 Alpine Ltd
10 yrs from 1.05.2003
Gross Internal Area: 300sq m (3229)
£12,000
FRI terms Rent review 5th year
Tenancy Commentary: •
When the contractual term expired on 1/05/2013, Alpines’ tenancy did not end but continued as before on the same terms as the original contractual tenancy. (s. 24 (1) Landlord and Tenant 1954 Act part II).Security of tenure prevents the tenancy from being terminated.
•
Based on information gathered, there is no evidence that the tenant has given a s.27 (2) notice to terminate the tenancy.
•
Therefore, Alpine Ltd has enjoyed business presence within the location for over 10 years. During this period the business has thrived and built up a clientele and the location now bears considerable importance to the continued success of the business. If it is to move the business will be losing more than just the building- a lot of custom may also be lost. This will be of particular importance to Alpine Ltd, and therefore the landlord may be in a position to charge a far higher rent from the existing tenant on the renewal of the tenancy than would be possible if the premises are let to a new tenant on the open market.
•
It is in the landlord’s best interest to immediately serve a non-hostile s.25 notice (Rooney & Cridge, 2006) as soon as possible. For the purpose of this valuation we assume if a s.25 notice is served on the date of valuation i.e. 1st December 2014, the termination date will be on the 1st June 2015 (not less than 6 months and no more than 12).
•
In this case we have chosen a period of 6 months because “a notice which gives a date 6 months from the date of service of the notice will be valid” (Hewitson, 2001, p.64).
•
The rent payable by Alpine Ltd will be the same as what has been paid under the contractual tenancy i.e. £12,000 pa. This is subject to the landlord applying for an interim rent after giving the s.25 notice.
•
Once the s.25 notice is served, the tenant has 2 months to serve a counter notice stating whether they are willing to give up possession or not. Therefore setting procedure for renewal.
•
The property’s FRV is calculated to be £15,900 and is therefore currently underrented.
•
In the future, in order to avoid a continued tenancy running at a low rent, it is advisable for the landlord to include a provision for a rent review to take place on either the last or penultimate day of the contractual term (Hewitson, 2001). This, according to Hewitson (2001) will produce a rent payable which is higher than an interim rent payable during the continuation of the tenancy. “In addition such a provision would take effect from the date of the review rather than a later date under s. 24A (2) of the 1954 Act”( Hewitson, 2001, p. 45)
Term: £12,000 * YP (SR) 2 years @ 12%
1.6901
£20,281
6.64328
£105,628
Reversion: FRV: £53/ m2 x 300m2 £15,900 * YP (def.) 2 years @ 12%
£125,909 Say £125,900
Valuation Commentary: The 12% yield is used because the tenancy is within the holding period and this figure reflects the risk that the tenant may serve s.27 (2) notice to terminate before the date specified in s.25 notice and the contract will therefore end leaving the property vacant. Therefore this property poses a higher risk to the investor because of the uncertainty associated with it.
4.3
Unit 3 Sports Fit Ltd
3 yrs from
£15,125
15.10.2014 Gross Internal Area: 275sq m (2960)
FRI terms 3 months’ rent free
Tenancy Commentary: •
The tenant is a sports equipment business.
•
3 months’ rent free period suggests that an incentive is necessary to find tenants to rent the property to.
•
Short-term tenancy also suggests that the economic market is not doing well therefore, tenants are not willing to commit to a long-term lease
•
The rent is fixed for 3 years
•
Using the yield of 11% capitalised into perpetuity we can calculate the Capital Value of the property
•
The 3 month’s rent free period is assumed to be the result of the landlord paying a reverse premium to the tenant in order to secure the tenancy. This suggests that there is low demand and high supply of such premises and the current rent exceeds the market rent (Wyatt, 2013).
Rate per square metre: £15,125
=
£55/ m2
275 Rent passing: £15,125 * YP (perp.) @ 11% Capital Value:
9.0909 £137,745 Say: £137,750
Valuation Commentary: The 11% freehold yield is used because it is a new lease. The transaction is a recent one and represents the current market rental value. The 3 months’ rent free period is reasoned to be of little significance to the overall value because this is a common occurrence in the market. A similar agreement is evidenced in appendix 4 which shows a transaction of 5 year lease with 6 months’ rent free period.
4.4
Unit 4 Happy Days Ltd
12 yrs from
£10,000
10.10.2013
FRI terms. Stepped Rent £10,500 at year 3 then FRV after
Gross Internal Area: 200 sq m (2152)
Tenancy Commentary: •
Tenant is a set design company.
•
Stepped rent interpreted as follows:
•
Having verified with the client the following interpretation is used: Year 1: £10,000, year 2: £10,000, year 3: £10,500, year 4: FRV until end of lease with no rent reviews.
•
Onerous lease due to the fixed rents and after year 4, the landlord will have a long wait to next rent review.
Term 1: £10,000 * YP (SR) 1 year @ 9.5%
0.9132 £9,132
Term 2: £10,500 * YP (SR) 1 year @ 10%
0.9091
* PV of £1, 1 year @ 10%
0.8264463
£8,677
7.37839
£88,541
Reversion: FRV: £60/ m2 x 200m2 £12,000 * YP (perp.) def. 2 years @ 11% Capital Value:
£106,350
Valuation Commentary: •
In term 1, to reflect the security of the income being received a yield of 9.5% is used
•
Term 2 a 10% yield is used because the fixed increase of £10,500 is specified in the rent review clause and is therefore secure.
•
In the reversion calculation, 11% yield is applied because the income is 2 years away from being received and it will stay so for the remainder of the lease.
•
After year 4 the landlord will be in a position to receive the fixed FRV which in this case is estimated to be £12,000, until expiry.
4.5 Archer Ltd (warehouse) (Unit 5)
15 years from
£22,500
1.10.2001
FRI terms Rent review 6th year
Gross Internal Area: 750sq m (8072)
Tenancy Commentary: •
Archer Ltd are assumed to be a furniture fit-out company with a 2 year unexpired lease
•
Last rent review was in 2013, agreeing a rent of £22,500.
•
We are of the opinion that the FRV of the property is £30,750 (calculations included in the term and reversion table below). This suggests that the last review was below FRV.
•
This tenant occupies the largest unit in terms of size within the portfolio
•
Based on the length of the tenancy agreement, we assume that Archer Ltd is a quality tenant who would want to continue occupying the property.
Term: £22,500 * YP (SR) 2 years @ 10%
1.7355
£39,049
7.37839
£226,885
Reversion: FRV: £41/ m2 x 750 £30,750 * YP perp. (def.) 2 years @ 11%
£265,934 Say £265,900
Valuation Commentary: The 10% yield reflects that the unit is under-rented and hence the tenant’s willingness to see through the tenancy.
The 11% yield used in the reversionary is because as it reverts to FRV in 2 years’ time the figure will be higher than the current rent and therefore the tenant may want to terminate the contract. 4.5.1 Surrender and Renewal If the tenant were to surrender the existing lease in favour of a new 10 year lease on the same terms as the existing lease, i.e. a review at year 6, a rent of £27,500. (Appendix 5) is proposed. This is a fair value valuation of the rent as it is a negotiated settlement between the two parties. Fair Value is defined in the Red Book as as: The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. (IVS 2013).
This agreement would favour the landlord as he will be guaranteed a secure income for the next 10 years. The proposed rent of £27,500 is still below FRV and one wonders whether a secure income is better than a £3,250 loss? This is subject to deliberations with the client. The agreement benefits the tenant as he enjoys security and a profit rent for the next 6 years, furthermore the business is not affected by the risks associated with relocating, fitting out new premises, and loss of trade and loss of goodwill. 4.6 Unit 10 is owned by High Pensions Ltd and is let to your client by way of a 75 ground lease let 24 years ago. The rent paid is £1,000per annum with a review to full rental value every twenty five years. The property is sublet to XYZ Ltd at a rent of £10,000 per annum on a 6 year lease from 15th September 2011 on FRI terms. The full rental value of the unit is £12,000 per annum on FRI terms.
Tenancy Schedule Commentary: •
High Pensions Ltd is the Freeholder owning unit 10
•
Our client, Great Investments Ltd is the leaseholder of a 75 year ground lease with 25 year rent review to FRV
•
Ground rent is £1,000 pa with an upcoming rent review to FRV in a 1 years’ time.
•
Assume the ground lease is linked to the building i.e. unit 10 because the amount of £1000 agreed 24 years ago reflects the historic rent that would have been paid for such a unit and not the land.
•
XYZ Ltd is the sub-tenant on a 6 year lease with no rent reviews.
•
Rent received is £10,000 pa. on FRI terms, with 3 years left on contractual lease
•
FRV on the unit is £12,000 pa. on similar terms. Comparing this FRV to unit 4, we assume unit 10 is also 200m2
a) Great Investments’ Interest Term 1: Next 1 year Rent received from S/T:
£10,000
Rent Paid to F/H:
£1,000
Profit Rent:
£9,000
*YP (DR) 1 year @ 13% 3% 40%
0.5566 £5,009
13% yield is used for the leasehold valuation based on leasehold being less favourable than freeholds.
Having verified with the client the £1,000 ground lease rent is in relation to the building on the site, therefore the constant rent theory multiplier k will be multiplied to the £12,000 FRV of the building to obtain the FRV of the ground rent. Constant rent theory approach argues that a landlord should be no worse off over time by letting on an extended rent review pattern. In the case of unit 10, the long 25 year rent review does not conform to the 3 or 5 year reviews accepted in the market. The formula was devised by Jack Rose is used in calculating the hypothetical FRV of the ground rent. The formula used is “designed to produce a single factor, k, which is applied to the market rent on the usual pattern to arrive at the adjusted rental value” (Baum, Mackmin & Nunnington, 2011, p. 166).
Formula to obtain constant rent theory multiplier (k): k = (1+r)n – (1+g)n (1+r)n -1
*
(1+r)t -1 (1+r)t -(1+g)t
k= the multiplier r= equated yield = 0.13 n= number of years to review subject lease = 25 g= annual rental growth expected = 0.05 t= number of years to review normally agreed = 5 Assuming a 5% pa income rent growth
Hence reversion to rent received K = (1+0.13)25 – (1+0.05)25 * (1+0.13)25 -1 21.23-3.39
(1+0.13)5 - (1+0.05)5 *
20.23 •
17.84
0.88
•
1.32
0..84 1.84-1.28
*
20.23 •
(1+0.13)5 -1
0.84 0.56
*
1.5
Therefore the Ground rent to be charged at reversion to FRV: £12,000 x 1.32 = £15,840 p.a. say £15,800
b) Reversion to FRV: Last 2 year term of XYZ tenancy Rent received from S/T:
£10,000
Rent Paid to F/H:
£15,800 (FRV)
Profit Rent:
-£5,800
*YP (DR) 2 years @ 13% 3%40%
1.0515
*PV of £1 in 1 year @ 13%
0.8849558 -£5,397
c) Reversion to FRV next 23 years: FRV
£12,000
Less rent paid
£15,800
Profit rent
-£3,800
*YP (DR) 23 years @ 13% 3% 40%
5.5140
PV of £1 in 3 years @ 13%
0.6930502 -£14,522
The head-leasehold produces a profit rent in the one year left to FRV of the ground rent. In the last two years of the sub-lease there is a negative profit hence its value diminishes. The reviews on the sub-lease and head-lease no not coincide therefore this produces varying negative and positive profit rents leaving Great Investment Ltd in a weak position as the head-leaseholder.
On a side note, the acquisition of the freehold interest from High Pensions Ltd would be a better investment as they can expect an income flow in perpetuity. The value of the freehold is calculated to be worth £129,400 (appendix 6): As for now it is a non-commendable investment as it relies on sub-letting the unit at a rent higher than the ground rent payable. The landlord would be well advised to approach the freeholder in view to surrender the leasehold subject to a negotiated payment.
5. Market Values are as follows: Unit 1:
250m2
Freehold
£122,900
Unit 2:
300m2
Freehold
£125,900
Unit 3:
275m2
Freehold
£137,500
Unit 4:
200m2
Freehold
£106,350
Unit 5:
750m2
Freehold
£265,900
Unit 10:
200m2
Head-Leasehold
-£0 (negative profit hence no profit)
We are of the opinion that the value for a proposed sale of the entire portfolio as at 1st December 2014 £758, 550.00 (Seven Hundred and Fifty Eight Thousand, Five Hundred and Fifty Pounds)
6. Compliance: As the Valuer, I can confirm my competency to undertake this valuation and to the best of my knowledge no conflict of interest arises of my acceptance of these instructions. This report has been prepared by Winnie Machogu
Signed Dated 1st December 2014
Appendix 1 Building Report Unit 2 Trafford Park Fourth Avenue Manchester M17 1DB The property comprises an industrial building of steel portal frame construction with profile steel cladding incorporating translucent roof lights and block walls. Internally the premises provide ground floor industrial accommodation with additional mezzanine space. The property is located on Fourth Avenue within the Village in Trafford Park. The Village is accessed via Westinghouse Road and nearby Village Way provides access to Junction 9 of the M60. Trafford Park Railway Station is also within close proximity. Report as at 22 December 2014 The property has also been known as: Unit 2 Trafford Park
Fourth Avenue
Manchester
M17 1DB
RECENT TRANSACTIONS Freehold Sold Primary Use: Grade: Date: Days on market:
Warehouse Second Hand 30/05/2014 672
Total Size: Quoted Price: Achieved Price:
5,026 sq ft (467 sq m) £240,000 £215,000
Purchaser Agent: Vendor: Purchaser: Vendor Agent:
Altus Edwin Hill Private Pension Fund Stocks Limited Tennessee Fried Chicken Ben Fallows Tel :01612340777 Fax :01617468547
Stocks Limited has purchased the freehold interest in 5,026 sq ft of industrial space from a private pension fund for £215,000. TFC Property acted on behalf of the vendor. Altus Edwin Hill acted on behalf of Stocks Limited. The quoting price was £240,000. Achieved price confirmed by Ben Fallows at TFC Property. EPC Rating confirmed as D. (466 sq m) Amenities: 1 Drive-in Loading Bays, 16.150 metres Eaves Height, Car Parking, Disabled Facilities, Fluorescent Lighting, Gas Fired Blower Heating, Reception, Security System, Skylight ______________________________________________________________________________________________________
OWNERSHIP STOCKS LIMITED
Last known purchaser as of:
30/5/2014
Appendix 2 Building Report Unit 6-11 Parkway Point Longbridge Road Manchester M17 1SN The property comprises a terrace of industrial/warehouse units of steel portal frame construction with brickwork elevations to dado level and profile metal cladding to eaves. The roof consists of lined and insulated corrugated sheeting. The property is located on Parkway Industrial Estate in the heart of Trafford Park. The estate is accessed via Ashburton Road West close to junctions 9 and 10 of the M60 motorway which in turn provides onwards connections to the regional and national motorway networks. Manchester International Airport and Manchester city centre are located a short distance from this property. Report as at 22 December 2014
RECENT TRANSACTIONS ______________________________________________________________________________________________________ Letting Primary Use: Grade: Date: Days on market:
Warehouse Second Hand 01/06/2014 1055
Total Size: Quoted Rent: Achieved Rent: Lease End:
6,496 sq ft (603 sq m) £29,232 at £4.50 psf £26,309 at £4.05 psf 31/05/2019
Tenant: Landlord Agent:
Avoca Services Limited Knight Frank LLP Rob Taylor Tel :01618337714 Fax :01618321478
Avoca Services Limited has taken 6,496 sq ft (603 sq m) of ground-floor industrial space within unit 11 from Hansteen Holdings Plc on a five-year lease on an average rent of £26,308.80 pa. Knight Frank acted on behalf of the landlord. The quoting rent was £29,232 pa, equating to £4.50 psf . Achieved rent confirmed by Knight Frank. (£48.48 psm) Amenities: 6.300 metres Eaves Height, Car Parking, Fluorescent Lighting, Secure Yard Area ______________________________________________________________________________________________________
Appendix 3 Building Report Units 23-25 Westbrook Trading Estate Westbrook Road Manchester M17 1AY The property comprises a terrace of three industrial units of steel portal frame construction arranged over one floor. The property is located on Westbrook Road close to its junction with Trafford Park Road within a mixed commercial and residential area of Manchester. The A5081 Village Way is located close by giving access to Junction 9 of the M60 Motorway. Report as at 22 December 2014
RECENT TRANSACTIONS Letting Primary Use: Grade: Date: Days on market:
Warehouse Second Hand 15/11/2014 758
Total Size: Quoted Rent: Achieved Rent: Lease End:
3,904 sq ft (363 sq m) £23,424 at £6.00 psf £20,496 at £5.25 psf 14/05/2016
Landlord Agent:
Tenant: Landlord Agent: Landlord Agent:
B8 Real Estate Jonathan Thorne Tel :01925320520 City Air Express Ltd JLL Tennessee Fried Chicken
City Air Express Ltd has taken 3,904 sq ft (363 sq m) of ground-floor industrial/warehouse space from Canmoor Asset Management Ltd on an eighteen-month lease at £20,496 pa, equating to £5.25 psf (£56 psm), with no rent review or option to break. TFC Property, B8 Real Estate and JLL acted on behalf of Canmoor Asset Management. A one month rent-free period was agreed. The tenant was unrepresented. The quoting rent was £23,424 pa, equating to £6.00 psf . Achieved rent confirmed by Ben Fallows at TFC Property. (£65 psm) Amenities:
4.500 metres Eaves Height, Car Parking, Heating, Security System
Appendix 4 Building Report
Willan Enterprise Centre Units 11-12 Fourth Avenue Trafford Park Manchester M17 1DB The property comprises a terrace of two industrial/warehouse units of steel portal frame construction with full brick elevations and a corrugated steel roof incorporating translucent panels for light. The property is located in Willan Enterprise Centre on Fourth Avenue in the heart of Trafford Park. The property is in close proximity to Manchester City Centre and has excellent with Junction 10 of the M60 which in turn links to the M62. Report as at 22 December 2014
RECENT TRANSACTIONS Letting Primary Use: Grade: Date: Days on market:
Mixed Retail Second Hand 27/07/2009 493
Total Size: Quoted Rent: Achieved Rent: Service Charge: Rates: Total Outgoings: Rent Free Period: Lease End:
1,105 sq ft (103 sq m) £8,000 at £7.24 psf £8,000 at £7.24 psf £1,138 (approx £1.03 psf) £6,696 (approx £6.06 psf) £14.33 psf 6 month(s) 26/07/2014
Landlord Agent: Other: Limited Tenant: Limited Landlord Agent: Other:
Altus UK LLP Cheshire Industrial Services Cheshire Industrial Services Willan Investments Willan Investments
Cheshire Industrial Services Limited has taken 1,105 sq ft (103 sq m) of ground-floor industrial/warehouse space from Willan Investments Ltd on a five -year lease at £8,000 pa, equating to £7.24 psf , no rent reviews or options to break. Willan investments Ltd and Altus Edwin Hill acted on behalf of Willan Investments Ltd. A six months rent-free period was agreed. Cheshire Industrial Services Limited was unrepresented. The quoting rent was £8,000 pa, equating to £7.24 psf . Achieved rent confirmed by Toby Holmes at Willan Investments Ltd. (£77.93 psm) Amenities: 1 Loading Door(s), 3 Phase Power, 4 metres Eaves Height, Steel Portal Frame, WC's ______________________________________________________________________________________________________
Appendix 5 Surrender and renewal calculations Landlord’s present interest: Term: Income
£22,500
* YP (SR) 2 years @ 10%
1.7355
£39,049
Reversion: FRV
£30,750
* YP (perp.) def. 2 years @ 11%
7.37839
£226,885 £265,934
Landlord’s future proposed interest: Rent Received
x
* YP (SR) 6 years @ 11%
4.2305 4.2305x
Reversion: FRV
£30,750
*YP (perp.) def. 6 years @11%
4.86037
Proposed Value
£149,456 + 4.2305x
Present
=
Proposed
£265,934
=
£149,456 + 4.2305x
£265,934-149,456
=
4.2305x
£116478 /4.2305
=
x
£27,533
£149,456
Landlord requires £27,533
Tenant’s present interest: FRV
£30,750
Less Net Rent Paid
£22,500
Profit Rent
£8,250
*YP (DR) 2 years @12% 3% 40%
1.0627
£8,767
Tenant’s future proposed interest FRV
£30,750
Less Rent Paid
x
Profit Rent
30,750-x
*YP (DR) 6 years @ 12% 3% 40% 2.6479
Proposed Value
£81,423 – 2.6479x
Present
=
Proposed
£8,767
=
£81,423-2.6479x
£81,423-8,767
=
2.6479x
£72,656/ 2.6479
=
x
£27,439 Tenant can afford to pay £27,439 A proposed rent of £27,500 is suggested due to the 6 year wait to rent review and because it is the tenant who is requesting the surrender and renewal
Appendix 6 Freehold Valuation for Unit 10. Term: £1,000 *YP (SR) 1 year @10%
0.9091
909
Reversion: FRV: 15,800 *YP (perp.) @ 11%
9.0909
* PV £1 in 1 year @ 11%
0.9009
126,945 £129,400
References: Baum, A., Mackmin, D. & Nunnington, N. (2011). The Income Approach to Property Valuation. (6th ed.). London: Estates Gazette Hewitson, R. (2001). Business Tenancies. London: Blackstone Press Limited. Millington, A., F.(2000). An Introduction to Property Valuation (5th ed.).London: Estates Gazette Rooney, A. & Cridge, J. (2006). A Surveyor’s Handbook: Business Tenancy Renewals. Coventry; RICS Royal Institute of Chartered Surveyors. (2013). RICS Valuation- Professional Standards January 2014. London Bibliography: Baum, A., Mackmin, D. & Nunnington, N. (2011). The Income Approach to Property Valuation. (6th ed.). London: Estates Gazette Davidson, A., W. (2002). Parry’s Valuation and Investment Tables (12th ed.). London: Estates Gazette Hewitson, R. (2001). Business Tenancies. London: Blackstone Press Limited. Investment Property. (2013). Property Investment in Manchester | Property Investing in Manchester. Retrieved 22nd December 2014 from: http://www.investmentproperty.co.uk/property-knowledge-zone/propertyinvestment/property-investment-in-manchester-property-investing-in-manchester Investment Property. (20130. Renewing and Ending a Commercial Lease | Business Property Guide. Retrieved 22nd December 2014 from: http://www.investmentproperty.co.uk/propertyknowledge-zone/property-law-and-compliance/renewing-and-ending-a-commercial-leasebusiness-property-guide Investment Property. (20130. Buy Commercial Property Investment | UK Property Investment Guide. Retrieved 22nd December 2014 from: http://www.investmentproperty.co.uk/property-knowledge-zone/property-investment/buycommercial-property-investments-uk-property-investment-guide
Millington, A., F.(2000). An Introduction to Property Valuation (5th ed.).London: Estates Gazette Rooney, A. & Cridge, J. (2006). A Surveyor’s Handbook: Business Tenancy Renewals. Coventry; RICS Royal Institute of Chartered Surveyors. (2013). RICS Valuation- Professional Standards January 2014. London Scarrett, D. (2007). Property Valluation: The Five Methods (2nd ed.). New York, NY: Routledge. Wyatt, P. (2013). Property Valuation (2nd ed.). Chichester, West Sussex: Wiley - Blackwell Pub.