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Residual land Valuation Method Question (1)

Residual Method
Class Exercise
A developer wishes to estimate the development value of a site located in Central Edinburgh. The site
has outline planning permission for 800 square metres (GIA) of standard shops with 6,750 square metres
(GIA) of offices above. After consideration of various designs and layouts, an optimum scheme has been
finalised and the developer is confident full planning permission will be granted in six months time.
From his knowledge of the area and the scheme proposed, the developer considers that the following is
The Valuation Surveyor estimates the current rental values to be:
Shops : £250 per square metre (90% efficient)
Offices: £200 per square metre (85% efficient)
It is considered likely to take up to nine months to let the shops and offices. A letting fee of 10% of the
annual rent can be assumed.
Current construction costs estimated by the Quantity Surveyor are:
Shops: £500 per square metre
Offices: £850 per square metre
Ancillary costs: £300,000 (for access and environmental improvements)
Professional fees are 10% of (a)-(c)
Contingencies are 4% of (a)-(d)
Building works should commence upon receipt of full planning permission (anticipated to be in six
months’ time) and take two years.
Assuming an all risks yield of 7.5%, developer’s profit requirement of 20% of costs, an interest rate of
8.5% per annum and making other assumptions as you deem appropriate, prepare a residual valuation of
the site.