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ERES 2009 Stockholm

ERES 2009 Stockholm Measuring depreciation in European office markets - just another valuation problem? Neil Crosby, Steven Devaney, Claudia Murray Universities of Aberdeen and Reading. Investment Property Forum (2005). Funded rental depreciation study for UK found the following results:.

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ERES 2009 Stockholm

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  1. ERES 2009 Stockholm Measuring depreciation in European office markets - just another valuation problem? Neil Crosby, Steven Devaney, Claudia Murray Universities of Aberdeen and Reading

  2. Investment Property Forum (2005) Funded rental depreciation study for UK found the following results: Note 1 : rates are annualised. Note 2 : as % of capital value, average p.a.

  3. Research Method for IPF (2005) • Used Law (2004) framework which comprised:- • Definition based on decline in value relative to a new property in the same location • Longitudinal study of a held sample of assets • Matched to a hypothetical benchmark (CBRE Rent and Yield Monitor in the UK) • Rental value of the sample properties matched to closest benchmark – using valuer’s rental valuation estimates as a basis for both.

  4. IPF Euro Study in 2008-2009 • Having achieved a “satisfactory” result in UK (including disaggregation to 10 IPD PAS segments) :- • Extend study to Europe • Markets chosen based on IPD and other data availability over a long enough period – no other criteria applied • Mimic longitudinal method which had served so well in UK • Ended up with 10 years in Amsterdam, Dublin, Frankfurt, Stockholm and London (WE and City) – 8 years in Paris

  5. IPD Data 1997 to 2007 – Benchmarks from CBRE and ATISREAL

  6. IPF Euro Office Market Results

  7. Can we explain the results? • We are currently looking at a number of explanations - for example:- • Market cycles through the analysis period (1997 to 2000 • Age cohort of the sample – There are major differences between the age of the samples, for example Stockholm and London West End have an average age of over 50 years while Amsterdam, Dublin and Frankfurt are relatively new (11/12Yrs). London City is surprisingly old (22 yrs) and has an average rental value of the sample at less than 40% of the average RV of the benchmark. • Number of benchmarks – 1 in Stockholm

  8. But the question we address in this paper isIs there a valuation problem? • Valuation process research (for example : EMF, 2007; Adair, at al,1996; McParland, et al, 2002; Crosby, 2007)) suggests that most valuation regimes are fairly consistent across Europe in using and interpreting market value as exchange price estimates; the possible exception is Germany (IPD GmbH, 2007) • In UK, the benchmark is provided by largest valuation firm valuing the IPD sample properties • This is not so in European Study. Are there “discrepancies” between benchmark and sample rental valuations?

  9. Analysis • Compared the year on year rental value change of the sample with the rental value change of the benchmark • Also looked at the rental value change of the newer properties in each sample compared to the their matched benchmarks to see if they behaved similarly to each other.

  10. Results

  11. Results

  12. Results • Benchmark more volatile than sample (except in Amsterdam where virtually the same). • Newer sample much higher correlation with the rest of the sample than with the benchmark (except London City where virtually the same and very high for benchmark to sample. • Sample valuations lag turning points of benchmarks in the case of Amsterdam, Dublin, possibly Paris - but not London. • But the real story is Frankfurt.

  13. Conclusions • We have no evidence to suggest that there is a problem with matching benchmarks to sample properties for depreciation studies in all of the locations except Frankfurt • We must look to other explanations for the “range” of results in those countries • The results for Frankfurt are hard evidence of a different interpretation of rental value in German Valuations for portfolios – and IPD GmbH definition of market rent includes sustainable value. • It is NOT evidence for sustainable values in capital valuations

  14. Frankfurt 450 400 350 300 Rental Value psm pa 250 200 150 100 Benchmark Sample 50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 And if you want any further convincing?

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