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Market Valuation and Investment Appraisal Report

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Updated: Jan 8th, 2022


Evaluation of real estate property for investment purposes is one of the most important aspects of the investment sphere. This requires proper analysis and assessment of various parameters that define the key value of the realty, and the proper evaluation is impossible without analyzing the entire market of real estate.

The aim of this paper is to find a suitable Grade A office accommodation for the European HQ of an international media organization. The key requirements for the real estate are 5 600 sq m of flexible office space and 465 sq m for the retail area. The report will involve a detailed analysis of the Greater Manchester real estate market, identification of two vacant properties that meet the given criteria with proper assessment of the pros and cons for each variant, assessment of both variants in terms of suitability for the activity sphere of the organization, market analysis as well as the heritable interest for each variant, and finally, the investment appraisal of each variant.

Market Analysis

The real estate market of Great Manchester is featured with a wide range of opportunities. As it is stated by Ratcliffe, Stubbs et.al. (2005), this city is popular for its conference, academic, and business focus, therefore, the possible variants for renting, leasing, or purchasing real estate property are numerous, and perfectly suited for business purposes.

The market, in general, may be described as quite favorable for dwelling, as well as retail. In general, most properties that are sold or leased for business purposes are featured with comparatively low prices, and suitable for proper investment (Grauer and Hakansson, 2005). As for the price policy on the market, Donohue and Hendershott (2006, p. 417), emphasized the following statement:

The city’s housing stock is vast and comprehensive, with everything from studio flats, terraced cottages, upscale dockside apartments, new-builds, and Edwardian and Victorian homes, to country mansions outside the city. After a fall during the recession, prices are just beginning to edge upwards, but inexpensive homes can be found, especially in the less fashionable districts. Returns on rental properties are reasonable at present and should increase.

As for the legislative side of market transfers regulation, it should be emphasized that purchase of the property by non-UK citizens is mainly unregulated, however, permanent residence of non-citizens may be featured with particular legislative problems. The purchasing process itself is straightforward; however, some deals may require a solicitor for making the process smoother.

As for the market forecasts, it is emphasized that the prices are going to increase for at least 5% within the nearest year, however, some researchers state that the growth rate may be 15% (Chamberlin, 2009). This may not touch the business real estate, however this statement is doubted (Azevedo-Pereira and Newton, 2010). The market segment is described by Chamberlin (2009, p. 358):

The average (mix-adjusted) real estate price in the first quarter of 1998 was £81,722, but at the peak of the market in the third quarter of 2010 the average price was £269,256 – over two and a half times higher or a total increase of 168%. Between the first quarter of 2005 and the fourth quarter of 2010 prices increased 60%, again when adjusted for inflation. Real estate prices at the end of 2006 were 35% higher than they would have been if the long-term trend rate of growth – 2.6% per annum in real terms since 1976 – had been maintained.

Therefore, it should be emphasized that the actual value of the buildings will be assessed from the perspective of the future liquidity, as well as the general growth of the prices for business focused real estate.

Two Vacant Properties

The variants that were selected for the European HQ in Manchester are available for investment or sale, and their parameters are quite suitable for the given parameters. The first variant is the building that may be used for multiple purposes, including office and retail:

One Marsden Street

One Marsden Street
Pall Mall, Kent Street, Sussex Street
Greater Manchester
M2 1HW
Deal Type: Investment Sale
Type of Space: Offices – (B1a) Office 6317 Net sq m (68000 sq ft)
Total Floor Space 6317 Net sq m (68000 sq ft)
Price: £33,000,000
Yield: 6%
Rent: m²/ft² £216.61 / £26.17

1 George Leigh Street

The second variant is more suitable for office purposes, and it is located in a more suitable part of the city:

Express Networks
1 George Leigh Street
Greater Manchester
M4 5DL
Deal Type: Investment Sale
Type of Space: Offices – (B1a) Office 7060 Net sq m (75994 sq ft)
Total Floor Space 7060 Net sq m (75994 sq ft)
Price: £20,500,000
Yield: 6%
Rent: m²/ft² £185.76 / £17.26

The pros and cons of each variant are obvious. Therefore, the first variant is located in a suitable district for office, and for retail work. The space and square is suitable for the basic parameters, and the actual importance of the selection may be explained by the fact that the estate is owned by a single owner, therefore, the purchase procedure will be simple. The building parameters are satisfactory from the perspective of fire safety, storm water management, as well as communications, and air conditioning. From the economic perspective, the building may be regarded as a beneficial investment, as business buildings are featured with high liquidity level. Additionally, there will be no barriers for purchasing it, as legislative basis is quite smooth, and without sufficient restrictions.

Disadvantages of this choice are associated with the price which is reasonable, however, it is explained by the building location only. As for the matters of investment, there may be some difficulties associated with selling it for retail purposes, as it will be hard to adapt the upper stories of the building for retail activity.

The second variant is more favourable in the terms of the price, however, its location is less suitable. Regardless of the lower price, the square of the building is larger, which is essential for the proper arrangement of the office activity, and may be helpful for further extension of the personnel. Additionally, this building is more suitable for retail activity, as the ground floor of the building is large enough for adapting it for retail activity.

As for the cons, these are associated with the low liquidity of buildings of such type, as some analysis (Chamberlin, 2009) forecast the lowering of the price in the future, which will lower the rent price; however, it will lower the selling price if there is a need to change the location.


First, it should be stated that the rental values of both variants are given from the perspective of the forecasted real estate price growth (Etter, 2008). Therefore, the actual price is associated with the values of the real prices, inflation rate, and forecasted prices in the segment of business focused real estate property. As it is stated by Azevedo-Pereira and Newton (2010, p 185):

In 2009, real estate prices started to fall but they have stabilised as of 2010. This may reflect the housing market’s normal seasonality or it may indicate a genuine recovery. Some analysts now expect UK house prices to contract by 50% in real terms. It may take quite a few years, possibly a decade, before real house prices get back to their peak levels.

From the perspective of this statement, it should be emphasized that the values of real estate suitability for the business purposes may be assessed also from the perspective of financial forecasts, and building tempos of new estates.

The selected units are located in business oriented parts of the city. This is confirmed by the principles of town planning, as business centre of the city is located for minimizing the noise background for the housing parts, and avoiding the violation of ecologic norms.

Market Valuation

The market valuation and heritable interest depends on the building needs that are faced by Manchester community. In general, the building needs for business purpose are higher, therefore, the valuation principles are associated with the growth potential of the company. As it is stated by Grauer and Hakansson (2005), there is no clear statement of how many houses the UK will have to build in the nearest future. The environmental and social costs of building are growing constantly, and in accordance with the reports published in the sphere of city planning, the population growth is not too high, while business development requires at least 1 500 million sq. f. for the nearest two years. The prices of these new buildings are assessed between £ 20 and £ 35 per sq. f. It is stated that the average inflation rate is 1.1% for the UK, and further building will be needed for decreasing this rate. As for the industry in general Grauer and Hakansson (2005, p. 117), emphasized the following conclusion:

The building industry is characterized by a reluctance to invest in development and low levels of innovation. Many house builders hold considerable portfolios of undeveloped land with planning permission. There is little evidence to suggest, at any rate across the country as a whole, that these land banks prevent other house builders entering the industry, or allow house builders to exercise market power. However, once land and planning permission has been acquired house builders have little incentive to compete for consumers or innovate.

In the light of this consideration, it should be emphasized that the development of the business oriented realty building is subjected to general business development terms, and depend on the demand for such types of buildings. Considering the fact that companies rarely acquire custom built real estate property, it should be stated that building companies have to work with some part of risk, which increases the overall prices for purchasing, or leasing property. Companies often control the production and sales rates for keeping the prices on the corresponding level, hence, the prices for both estates may be lowered if the company is planning to purchase another building from the same owner.

Labour intensity rates are regarded as one of the parameters for establishing costs. Additionally, the changes in labour intensity with the development of technologies causes market valuation changes. Since the shortage of qualified specialists for the building sphere is essential, this gap is included into the price. Since the situation will not change for the nearest 8-10 years, the building costs will not lower.

The heritable interest for the first property (68000 sq ft building) will be 11%, as the building is featured with 6% yield at the moment, and its location, as well as communications, make it rather favourable for most investors. The second variant (75994 sq. ft. building). Since its yield rate is the same (6%), the heritable interest will be slightly lower (10%), as location of this building is not so functional and favourable for some types of business activity.

Investment Appraisal

Proper appraisal requires some historical analysis of price development. In accordance with the research by Donohue and Hendershott (2006), it should be emphasized that the actual importance of investment into real estate property is explained by the cyclical nature of processes that happen in this sphere. Additionally, prices rarely fall enormously, while they can rise sharply for the short period of time (like in 1977-79 for 72%, and 1987-89 for 69%). Such increases are not forecasted at the moment, however, Olympics 2012 in London may stimulate the price growth.

Considering the DCF rates for business focused real estate property, it should be emphasized that rental business plays the most important role for the process of price forming. Additionally, it stays the strongest real estate business sphere, and 2011-2012 years period will be featured with strengthening the positions for the price forming process. The DCF for the first variant will be £ 127 394, and £ 97 264 for the second variant.

This was calculated in accordance with the formula given below:


Where: CF – Cash flow (total rent)

r – discount rate

Since the buyers’ expectations are subjected to annual expectations, the general value of NOI estimates will define the capitalization rate in general, and investment appraisal rates in particular. This is generally explained by the fact that DCF analysis does not add the leasing rate to the subject property, and the external environment of the real estate property is anticipated without NOI rate effect. Additionally, as it is stated by Etter (2008, p. 124):

Buyers who expect their properties’ occupancy levels to improve pay prices that reflect this expectation. Likewise, buyers who expect the future NOI of their properties to increase pay prices reflecting that expectation. In both cases, expectations are reflected by observed capitalization rates. And the problem arises from the actual appropriate comparables that are generally estimated from the perspective of price expectations

Therefore, the investment appraisal rates may be assessed from the perspectives of expectations and annual cash flows. However, such an approach can not be regarded as fully reliable.


Real estate assessment principles for the Great Manchester business centre involve numerous parameters. The selected variants are quite suitable for the media company, and the price difference is explained by the differences in the locations, and opportunity for adapting. Since there is a need to adapt at least 5000 sq. ft. for retail area, the second variant is more suitable for it. However, the first variant is featured with higher liquidity rate that influences heritable interest of the building.

Reference List

Azevedo-Pereira, J. A., Newton, D. P 2010. UK Fixed Rate Repayment Mortgage and Mortgage Indemnity Valuation. Real Estate Economics, 30(2), 185.

Chamberlin, G. 2009. Recent Developments in the UK Housing Market. Economic & Labour Market Review Vol. 3., No. 8.

Donohue, R., & Hendershott, P. H. 2006. Fund Flows and Commercial Real Estate Investment: Evidence from the Commercial Mortgage Market. The Journal of Real Estate Research, 26(4), 417.

Etter, W. 2008. Direct Capitalization Versus Discounted Cash Flow Analysis. Real Estate Center Journal. Vol. 10 No. 51.

Grauer, R. R., & Hakansson, N. H. 2005. Gains from Diversifying into Real Estate: Three Decades of Portfolio Returns Based on the Dynamic Investment Model. Real Estate Economics, 23(2), 117.

Ratcliffe, J., Stubbs, M., & Shepherd, M. 2005. Urban Planning and Real Estate Development In the UK. London: Spon Press.

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