My method

How to evaluate a retail rental value or a keymoney ?

How to select comparables and determine the market value ?

How to make comparable buildings with different configurations ?

Retail real estate cannot be addressed like office, industrial or residential. Hence, what are the appropriate methodologies to account for the specificities of this peculiar real estate market ?

My method is detailed in the book Méthode pratique de valorisation d’immobilier commercial / Praktische methode voor de taxatie van commercieel vastgoed, available in editions La Charte : www.diekeure.be

Looking at the value of retail real estate leads to the fundamental question : What is the essential factor accounting for its value ? For me, it’s its capacity to generate profit margin to its operator. In other words, turnover reduced by costs. The higher the operator’s profit margin (rent excluded), the greater it’s capacity to pay rent. But the market value of a retail real estate isn’t linked to its business, it is a matter of how it helps (or not) its operator to generate profit margin.

Real estate valuation is neither a science nor an art, but a complex work mixing knowledge and knowhow. The valuator must have the knowledge, be an astute observer of the market, stay informed of recent transactions, build up a high quantity of data. The valuator must also combine this knowledge with knowhow to understand the underlying forces of a specific real estate market and gain height to be capable of providing a true reflection of the market value.

My method brings together a series of guidelines and best practices to estimate as objectively as possible retail rental market value and keymoney taking only into account the real estate.

Rental value valuation

To value a market rent, I consider as only valid the approach through comparison, i.e. giving an indication of the value through comparison with similar real estate for which value information is available. It’s the most difficult way because it requires an excellent knowledge of past transactions, also known as “comparables”. But it’s the only one to give a correct reflection of the market rental value. Hence, one must take into account :

Market conditions.
Location.
Physical configuration of the real estate.

Assessing the market conditions of a specific location means selecting relevant comparables, in other words :

Belonging to a same market..
Recent.
Of similar physical configuration, and as appropriate.
Used to operate a similar business.

In order to render comparable real estates with various physical configurations, I weight surfaces according to their business utility (ITZA approach). Weighting grids vary according to the type of location : intown (high-street or destination), shopping center or out-of-town.

My method is detailed in the book Méthode pratique de valorisation d’immobilier commercial / Praktische methode voor de taxatie van commercieel vastgoed, available in editions La Charte : www.diekeure.be

Keymoney valuation

Keymoney is often a matter of dispute between landlords and tenants. But one must keep a fundamental point in mind : keymoney is the most direct reflection of the market. It immediately witnesses the excess of demand versus supply and has a high volatility depending on the economic conditions.

Since its value is intimately linked to the rights of the tenant according to its lease, it is logically highly dependent on the applicable specific legislation. Each legislation traces the limit, not always crystal-clear, between real estate and business ownership. Hence, one must take into account :

Rights and risks linked to the lease.
DMarket rental value.
Real estate assets belonging to the tenant.