Appraisal of a real estate can be made for such purpose as ensuring credit liability, financial reporting, sale or internal needs of a customer. The appraisal can be made actually during every stage of the realisation of the project.
The appraisal can be made during every stage of the investment process. Starting with the analysis of the usefulness of buying the area, on which the office building is to be realised, for a particular price. Then, an appraisal reflecting the advancement during all stages of the investment. Finally, it can be an appraisal of an office object which is being exploited – explains Arkadiusz Bielecki, Director, Valuations, DTZ.
The appraisal of office real estate is very different than the one of housing real estate, both in methodology and source data used. In the case of housing, a comparative approach is usually used. It means, that the appraiser checks, how much cost real estates, similar to the one being appraised. The value of appraised real estate is based on the traits of sales and sale offers. The appraiser is looking for differences between real estates being sold and the one being appraised. This method can be used to appraise real estates, which are frequently sold – says Przemysław Błaszkiewicz, MRICS, Associate Director, Valuation and Advisory Services, Colliers International.
Office real estates cannot be appraised in that way, because every one of them is unique and distinguishable, and the transactions are few and far between. The appraiser has then to use a profitable approach. The appraiser is estimating the value of the office building on the base of the income that can be attained from it. This approach includes some parts of the comparative approach, because the rent is estimated using the rules parallel to that which are used while appraising a housing real estate. It is, however, only one of a few elements, of which value consists – adds Przemysław Błaszkiewicz.
Value of an office building
Value of an office real estate is based on previously mentioned income, minus costs of maintaining the building, divided by capitalisation rate. Thanks to that value, we can know the risk, connected to investing in a particular object.
Income is not the sole factor, which influences the appraisal. Specifications of the building also have to be taken into consideration. They include the age of the building, its technical condition, standard of the finishing, access to parking spaces, level of the lease (which means a percentage of uninhabited space) and the quality of lease contracts of the real estate. Arkadiusz Bielecki notes: Another factor, influencing the value of an office real estate is the demand for such objects on the real estate market. It directly translates into capitalisation rates. The demand is directly dependent on the localisation of the building in Poland and in a particular city – currently the most sought-after by the investors are office buildings in Warsaw. The ones, located in other cities are definitely less popular.
During the appraisal, the amount and the mode of accounting operational costs is also important. It is crucial to know, which expenses have to be paid by the owner and which by the tenant. Outside factors also have to be remembered – they are, for example, the evaluation of local and country market, the forecasts concerning prolonging the lease contracts in a given localisation and the ones concerning the level of the rents.
The process of appraisal
Appraisal of an office real estate is a short process – the experts are in agreement that a standard one lasts up to 10 working days. It is, however, important to note more complicated projects. Time of the appraisal depends on the type of the report, demanded by the client. A longer time means that the subject of the appraisal is an office park, having a lot of tenants. We were once appraising an office real estate, consisting of 9 office buildings. That appraisal lasted 25 working days – explains Przemysław Błaszkiewicz.
On which the appraisal of a given real estate is based? The appraiser is using legal documents of a real estate – real estate register, extract from land register, copy of a record map, source of information concerning planning status of the real estate and, first of all, the data concerning lease contracts, operational costs generated by the real estate being appraised and the ones similar. After analysing all that data, the appraiser, using special software/model, inserts profit and cost data, evaluates the level of capitalisation rate and the final value of the real estate – says Arkadiusz Bielecki.
Accurate and professional appraisal of a real estate is very important, especially when considering rapidly developing Polish office real estate market. Knowledge of the appraising process will help during the analysis which the investor has to perform before deciding on investing capital in a particular real estate.