Jeremy's Blog 7th September 2022: Property Valuation in Uncertainty

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 6th October 2022

Substantial areas of the property market are moving into increasingly uncertain waters, taking valuers with them. Factors such as rising interest rates, cost challenges, potential recession and changing market demands combine with the usual economic dynamics of activity moving between sectors and regions make valuation more challenging.

A retrospective review for non-domestic property will soon come from the initial results of the rating revaluation in England and Wales for 2023, relying on values as at April 2021. That was in the pandemic but before many of the shocks in supply or energy markets and more recent increases in interest rates. Early expectations are for some substantial falls in retail and hospitality property, more strength in good offices with some consolidation of demand on better properties, and strength in logistics. Liability for business rates will move with those changes.

More recent challenges, including tightened financial conditions, will now bear on current and prospective property markets. Clients will ask valuers to provide opinions as to value to enable them to report or make decisions. Yet, as we have seen in previous troubled times, downward pressure on values often also sees many fewer transactions to offer contemporary evidence of capital and rental values or yields. Some may be forced sales and so could be at below market value. Values will have moved and large property companies will see that reflected in their stock market valuations. Afterwards, some may seek to place blame.

This calls for care and clarity in analysis, making the best use of such evidence as may be available to find the required capital or rental value. It may assist clients to provide more commentary on market circumstances and risks. With other issues now in play, the CAAV’s draft clause for currently unrevealed environmental values may be relevant.

A rating valuation is essentially a rent assessment. For what might in another context be decided by an arbitrator, two recent Upper Tribunal rating valuation appeals for the 2017 list offer examples, one relying on comparables and the other on receipts and expenditure (“budgets”):

• Ballcroft v Virk considered high street retail premises in Kidderminster and, working with experts on both sides, made the substantial adjustments needed for tenant inducements in three other leases to reduce the rateable value from £92,000 to £17,750.
• Fryer v Cox concerned a seasonal farm attraction (Apple Jacks and Spooky World) on mossland outside Warrington and, without effective comparables, used the receipts and expenditure method. The experts and then the Tribunal picked the budget over, line by line, determining that rateable value should be cut from £35,000 to £11,750.

Both decisions were driven by evidence and judgment; neither could be described as “splitting the difference” in finding the value.