Victorian Statutory Revaluation
Valuer-General Victoria and Municipal Group of Valuers
Guidelines on Valuation Methodology for
Shopping Centres
Introduction
These guidelines are to be used when valuing shopping centres for rating and taxation
purposes.
The guidelines need to be used in conjunction with the General Provisions for Specialist
Guidelines, which refers to the general requirements, legislation and procedures relating to
all statutory valuations.
Definition
The following shopping centre classifications are adopted in accordance with the Property
Council of Australia Shopping Centre Directory:
 Super Regional (e.g. Chadstone the Fashion Capital, Westfield Southland)
 two full-line department stores
 one or more full-line discount department stores
 two supermarkets
 around 250 specialty shops
 total gross lettable area retail exceeds 85,000 square metres
 Major Regional (e.g. Eastland Shopping Centre, Watergardens Town Centre)
 at least one full-line department store
 one or more full-line discount department stores
 one or more supermarkets
 around 150 specialty shops
 total gross lettable area retail generally between 50,000 and 85,000 square
metres
 Regional (e.g.
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Chirnside Park Shopping Centre, Parkmore Shopping Centre)
one full-line department store
a full-line discount department store
one or more supermarkets
around 100 or more specialty shops
total gross lettable area retail generally between 30,000 and 50,000 square
metres
 Sub-regional (e.g. Centro Mornington, Centro Brandon Park)

at least one full-line discount department store

a major supermarket

around 40 or more specialty shops

total gross lettable area retail generally between 10,000 and 30,000
square metres

Neighbourhood (e.g. Bayside City Plaza, Dandenong Hub Arcade, Sunbury Terrace
Shopping Centre)
 a supermarket
 around 35 specialty shops
 total gross lettable area retail generally less than 10,000 square metres
 Bulky Goods (e.g. Geelong Home Maker Centre, Homemaker City Epping)
 generally located adjacent to large regional centres or in non-traditional
retail locations
 purpose-designed, built and operated
Guidelines on Valuation Methodology for Shopping Centres – August 2011
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
total gross lettable area retail generally greater than 5,000 square metres
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Other definitions and industry terms
Capital expenditure
Those items that are significant replacements or additions to existing properties or for new
developments, as distinguished from cash outflows for expense items that are normally
considered part of the current period’s operations. Capital expenditure does not include
general maintenance and repair items.
Examples include replacement of lifts, escalators, air-conditioning, or roofing.
Casual tenant
Tenancies that do not have tenure and are usually portable or readily movable.
Incentives
Incentives are enticements offered to tenants to sign a lease. Incentives may be provided in
the form of a fit-out, cash or rent-free.
Amortisation is appropriate over the length of the lease in order to analyse a net effective
rent. However, be aware that market/trust valuations that are applying the passing rent may
make a deduction for incentives on a lump sum basis.
Management fees
A management fee is a periodic payment paid to a person or company for the day-to-day
management of a building occupied by a tenant or tenants. While management fees generally
don’t include leasing fees, some shopping centres do include them; therefore, investigation
is required to ascertain what management fees entail so that ‘double dipping’ doesn’t occur.
The recovery of management fees can depend on who the tenant is and the structure of the
lease.
Outgoings
According to the Retail Leases Act 2003 the definition of outgoings as contained in Section 3
means a landlord's outgoings on account of any of the following.
(a)
The expenses directly attributable to the operation, maintenance or repair of:
(i)
(ii)
the building in which the retail premises are located or any other building or
area owned by the landlord and used in association with the building in
which the retail premises are located; or
in the case of retail premises in a retail shopping centre, any building in the
centre or any areas used in association with a building in the centre.
(b) Rates, taxes, levies, premiums or charges payable by the landlord because the
landlord is:
(i)
(ii)
the owner or occupier of a building referred to in paragraph (a) or of the
land on which such a building is erected; or
the supplier of a taxable supply, within the meaning of the A New Tax
System (Goods and Services Tax) Act 1999 of the Commonwealth, in respect
of any such building or land.
Outgoings are collected from lessees to varying extents. The rent is either net, gross or semi–
gross, depending on the amount of outgoings recovered.
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The base formula is:
Outgoings = recoverable outgoings (recovered + under-recovered outgoings) + nonrecoverable outgoings
Recoverable outgoings
Recoverable outgoings are expenditures paid in connection with operating a property, which
are properly charged to tenants in accordance with the lease.
In accordance with the Retail Leases Act 2003, the form of disclosure statement prescribed
for the purposes of Sections 17(1)(a), 26(1), 61(5) and 61(5A) of the Act is in Schedule 1
Retail Leases Regulations 2003. An example of the information specified in relation to
outgoings is as follows:
Administration
 administration costs (excluding management fees and wages)
 audit fees
 management fees
Air conditioning/temperature control
 air conditioning maintenance
 air conditioning operating costs
Building/centre management
 owners corporation/strata levies
 building intelligence services
 customer traffic flow services
 energy management services
 gardening and landscaping
 insurance
 pest control
 ventilation
Building/centre security
 caretaking
 emergency systems
 fire levy
 fire protection
 security services
Cleaning
 cleaning consumables
 cleaning costs (excluding consumables)
Communications
 post boxes
 public telephones
Customer facilities
 car parking
 child minding
 escalators
 lifts
 uniforms
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Customer information services
 information directories
 public address/music
 signage
Government rates and charges
 local government rates and charges
 water, sewerage and drainage rates and charges
(Note: under Section 50 of the Retail Leases Act 2003, the landlord may
not claim land tax as an outgoing)
Utility services
 electricity
 gas
 oil
 water
Waste management
 sewerage disposal
 waste collection and disposal
Other Costs
 advertising and promotional costs
Recovered outgoings
Outgoings that the centre is legally entitled to recover, and does recover from the lessee.
Under-recovered outgoings
Outgoings which the centre is legally entitled to recover, but chooses (either voluntarily or
by market forces) to not recover.
Non-recoverable outgoings
The expenditures paid in connection with operating a property, which are prohibited from
being recovered under legislation such as the Retail Leases Act 2003.
Examples may include, audit fees, legal fees, consultancy fees, company contributions
marketing, Internet maintenance fees and bank charges.
Promotion
Promotion is the contribution by the owner and/or tenant to promote the shopping centre.
Any contribution by a tenant must be held in a separate account (therefore not part of the
centre income) and spent for promotion; therefore, there is no income ‘gain’ to the owner.
These should not be included within the outgoings recovered calculation and the owner’s
contribution is classified as a non–recoverable expense.
Rebate
A rebate is a return or refund of an amount of money already paid, usually in retail due to a
tenant’s below expected turnover and/or inability to pay due to some form of hardship that
causes the rebate to be applied. A rebate applied to tenants that specifically pertains to a
new shopping centre can also be referred to a stabilising allowance.
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Vacancy allowance
A vacancy allowance is based on the percentage of lettable area that is not occupied or
rented, or has a perpetual risk of vacancy. In relation to income, a projected vacancy rate is
used to estimate the vacancy allowance, which is deducted from potential gross/net income
to derive effective gross/net income.
Notes:
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Land tax cannot be recovered from tenancies subject to the Retail Leases Act 2003.
The provisions of the Retail Leases Act 2003 do not apply to all retail premises.
Outgoing unit rates ($ per m2) may vary according to various factors – tenancy type/shop
area etc. The average rate per centre will increase with the centre’s size/category (i.e.
higher for regional than neighbourhood). The Property Council of Australia publishes
benchmarks for operating costs on a state basis that includes statutory charges,
operating expenses and recoverable expenses.
The level of recoverable outgoings per tenancy will vary subject to the ability for each
party to negotiate and a centre’s willingness to have the tenant in its centre.
In determining estimated annual value no deduction is to be made for depreciation or
sinking fund contributions.
All non-recoverable outgoings must be treated on a case-by-case basis (i.e. each shop
individually).
Vacancy allowances usually run off the income of speciality shops.
Capital expenditure can be categorised into two sub-categories:
o capital expenditure that in turn will generate income (for example the
reconfiguration of retail areas); or
o capital expenditure that doesn’t automatically generate additional income
(e.g. an air conditioning upgrade) – although it may impact on overall returns
by reducing operating costs plus depreciation benefits.
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Additional Victorian legislation and cases applicable to shopping centres
The following Act and regulations are also relevant to this topic:
 Retail Leases Act 2003
 Retail Leases Regulations 2003
Court cases:
The following are some of the court cases applicable to shopping centre valuations:
Each case has the catchwords sourced from the cited case.

Challenger Property Asset Management Pty Ltd & Anor v Stonnington City Council
& Anor [2011] VSC 184
VALUATION OF LAND – Meaning of “site value” – Meaning of “capital improved
value” and whether “vacant to let” deduction required – “highest and best use” –
Falconer principle – sales of other properties and their relevance as comparable sales
or on other bases – Valuation of Land Act 1960 (Vic).
REAL PROPERTY – Meaning of fee simple in possession – “Whether lease an
encumbrance”.

Perpetual Trustee Co Ltd and Anor v Valuer-General, Trust Company of Australia
Ltd and Anor v Valuer-General (2006) Supreme Court of South Australia
REAL PROPERTY – VALUATION OF LAND – STATUTORY VALUES – CAPITAL VALUE
Appeal against assessment by Valuer-General of the capital value of land – definition
of "capital value" – meaning of "unencumbered" – whether allowance must be made
for a let-up period in determining "capital value".

ISPT Pty Ltd v City of Melbourne and Valuer-General Victoria [2008] VSCA 180
VALUATION OF LAND – Application for leave to appeal decision of Victorian Civil
and Administrative Tribunal – Role of the Tribunal – Whether expert tribunal –
Whether Tribunal pieced together own valuation.
VALUATION OF LAND – Highest and best use – Whether single precise use or
combination of uses.
VALUATION OF LAND – Comparable sales – Improved and unimproved sales – Vacant
land sales – Weight to be given to valuer’s evidence.

Mirvac Funds Ltd v Moonee Valley City Council and Valuer-General Victoria VCAT
15 September 2009
Compensation for compulsory acquisition of part of land – Before and after value –
Pointe Gourde principle – Hypothetical zoning – Hypothetical availability of services –
Highest and best use – Comparable sales – Enhancement – Severance – Expert
evidence – Land Acquisition and Compensation Act 1986, ss.40, 41, 43

Shell Co of Australia Ltd and Number One Spring Street Pty Ltd v City of
Melbourne [1997] 2 VR 615
LOCAL GOVERNMENT – Rating of land – Under local government legislation – City of
Melbourne – Whether return necessary – Valuation made before but rate declared
after 1 October 1992 – What Act applicable to such valuation – "Returned to take
effect" – Act no 178 s42; s43 – Local Government Act 1958 s254; s255; s258; s262 –
Local Government Act 1989 s157(1) s160 – Valuation of Land Act 1960 s2(1) & Part II
Div 3A – Valuation of Land (Amendment) Act 1989 s4(1)
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PROPERTY LAW – Valuation of land – Statutory values – Net annual value – Estimated
annual value – Whether land tax profit on services or allowance for depreciation
deductible – Premium quality office tower – "Usual tenants rates and taxes" –
"Probable average annual cost of .... expenses" – Land Tax Act 1958 s6; s8(1); s42
Valuation of Land Act 1960 s2(1)
PROPERTY LAW – Valuation of land – Statutory values – Capital improved value –
"Unencumbered by any lease" – Valuation of Land Act 1960 s2(1)
101 Collins Street v City of Melbourne (1995) 87 LGERA 207

PROPERTY LAW – Valuation of land – For rating purposes – Misapprehension by
judge of valuer's evidence – Whether finding made once misapprehension corrected
open on evidence as a whole – Question of law – Valuation of Land Act 1960, s47(4)
Other relevant material:
o
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Property Council of Australia Benchmarks Retail VIC 2010
Property Council of Australia Shopping Centre Directory VIC/TAS 2010
These publications are available on the Property Council of Australia website,
www.propertyoz.com.au/Vic >>Bookshop
Urbis Shopping Centre Investment Reviews www.urbis.com.au
Small Business Commissioner – Guidelines to the Retail Leases Act
www.sbc.vic.gov.au/media-and-publications
Shopping Centre News - http://shoppingcentrenews.com.au/
Australian Bulky Goods Directory – www.deependservices.com.au
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Identification of properties
Australian Valuation Property Classification Codes (AVPCC)
To appropriately categorise shopping centres in a municipality refer to the Australian Valuation
Property Classification Codes (AVPCC) available at www.dse.vic.gov.au/valuation.
The following codes apply to shopping centres:
Shopping Centre (AVPCC 213)

Unspecified – 213.1

Super Regional – 213.2
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Major Regional – 213.3
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Regional – 213.4
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Sub-Regional – 213.5

Neighbourhood – 213.6
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Rental questionnaire and property information – specific requirements applicable
to shopping centres
In addition to the general requirements for rental information, the following is a guide to the
specific information required for shopping centres.
1. Shopping centre plans/maps – shop
numbers and areas (in addition to the
tenancy schedule) on plans would be very
useful.
2. Tenancy schedule –
Sample tenancy schedule information
Trading name
Floor level
Unit number
Shop number
Lease area (m2)
Lease commencement date
Lease expiry date
Term of lease
Lease type
Next review date
Method review
Lease options
Base rent per annum
Base rent PSM (pa)
Actual turnover
Percentage turnover/rent
Outgoings per annum
Outgoings PSM (pa)
Gross rent per annum
Gross rent PSM (pa)
Rent free period
Incentives
Rebate
Fit out provisions
Comments
3. Recoverable outgoings that relate to
tenancy schedule provided.
4. Outgoings – audited and budgeted
statement of outgoings including
recoverable and non recoverable
outgoings. This should also include
owner’s contribution to promotion.
5. Incentives – incentives for transactions
performed in the last 12 months and
schedule of rent rebates.
6. Capital expenditure – summary of
anticipated capital expenditure (per line
item) for the next 12 months and any
anticipated lifecycle expenditure.
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7. Land information
o
o
o
o
Title details
Does the site contain landfill?
Is the site affected by contamination?*
What site works have been undertaken
by the current owner in the past 15 years
(please provide details per line item)?*
Yes  No
Yes  No
If Yes, provide details and supportive
documentation.
_______________________________________
_______________________________________
_______________________________________
* Note: it is essential if a property has either contamination or site works, then detailed
documentation must be provided that can verify contamination (such as a service station)
and/or site works undertaken by the owner or occupier or at that person’s expense in the
past 15 years.
Moving Annual Turnover (MAT) details
In order to accurately assess the required individual and total centre statutory valuation
assessments, we must have regard to the centre’s and individual tenant’s MAT details.
Please provide the centre’s and all tenants’ MAT figures for the past two-year period.
Additional information including the centre’s MATs per quarter or biannually would be
advantageous.
Please indicate if the MAT is inclusive or exclusive of GST.
Note: overall centre turnover is often available and this, when compared to passing net
rental, will provide guidance on occupancy costs and relative performance of a centre.
Valuations for financial reporting
Please provide a copy of current asset valuation/s on the shopping centre.
Other details considered relevant
Please include other details (in addition to the above) that you believe may affect the
statutory values of the property or properties.
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Property inspection – specific requirements applicable to shopping centres
1. Documents to be sighted.
 Request title search and confirm land area with title.
 Determine if any Section 173 agreements, covenants, planning permit
conditions etc. are registered on the title.
 It is highly advisable that the valuer confirms with the council’s planning
department whether any new agreements have been reached or are under
negotiation with the centre, and what maximum permissible floor area is
allowed for site.
2. Inspect shopping centre
 Check current tenant against the tenancy schedule to confirm that actual
tenancy at the shopping centre correlates to the tenancy schedule and
ascertain any anomalies.
 Check the relative tenancy areas and locations are as per the schedule.
 Note anything that may impact on the valuation such as the physical location
of shops. For example, if the shop is located in a ‘blind spot’ within the centre
the lines of site may need to be established or there may have been a change
of occupancy.
 Take note of the general condition of the building and car parking area in the
context of whether or not significant maintenance is likely to be required in
the foreseeable future.
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Methodology

Site value
SV methodology
The primary approach is to apply a rate per square metre of site area. As a check
method the rate per square metre of permitted gross leasable area (GLA) can be used,
provided the permitted gross leasable area is an actual area known at the time and is
not an assumed or estimated area. The primary evidence to use is that of comparable
vacant land sales.
Although a useful indicator the rate per square metre of permitted GLA ought to be
treated with caution. Use of this measure for a site comprising multiple uses (e.g. mixed
use – retail, commercial and residential) may be less reliable, as was demonstrated in
the Jam Factory decision.
The site value of a parcel with or without a planning permit should be valued on the
basis of highest and best use including consideration for the current use of the
property, assuming a permit would be granted for the development given the existing
zoning and planning controls.
If the site has a Section 173 agreement registered on title, then the valuer needs to
assess what impact the agreement has on the highest and best use of the site. If the
Section 173 agreement is subject to the current use then the agreement needs to be
assessed in relation to the highest and best use of the land.
Site value analysis
 Valuers should undertake a comprehensive analysis of similar zoned land and/or
land suitable to be developed as a shopping centre. In accordance with the ISPT Pty
Ltd decision, sales evidence need not be confined to a single highest and best use.
 Evidence should be broadened to include sales in other municipalities, if applicable.
 Factors such as size, zoning, planning controls, demographics, permitted GLA and
any existing permits should be considered.
 All sales should be analysed on a rate per square metre of site area (after making
adjustment for surplus land) and/or a rate per square metre of permitted GLA (if
known). If the permitted GLA is not known or provided at the time of the sale, this
method should not be relied upon.
 Sometimes the defined GLA in the relevant planning controls does not equal the
actual GLA on the site or the maximum potential GLA. This may be due to the
planning scheme or planning controls only stipulating retail space.

Capital improved value
CIV methodology
The primary approach used is capitalisation of market rent. The primary evidence to use
is that of comparable rents and sales of comparable properties analysed by category to
indicate appropriate market rentals and capitalisation rates.
Unencumbered freehold
In order to assist valuers in assessing capital improved value, the six relevant
considerations identified by Croft J in – Challenger Property Asset Management Pty Ltd v
Stonnington City Council & Anor [2011] VSC 2011have been elaborated in the following
way:
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The comments in italics prefixed by the words ‘Practical Note’ are comments in this
guidance note only and do not form part of the judgement.
a)
[T]he value of the land is to be assessed by reference to a hypothetical sale of a
fee simple interest in the land and on the basis that the fee simple interest is not
affected by the actual lease;
Practical Note – The valuer is assessing the value of a hypothetical fee simple
estate, rather than the actual. If the actual estate is subject to a lease, the existing
lease is ignored. Therefore the interest valued is unrestricted and the valuation of
the ‘full bundle of rights’ is undertaken according to market.
b)
[T]he hypothetical sale should assume the actual physical state of the land;
Practical Note – The assessment is undertaken on the existing physical state of the
land at the date the valuation is returned. The usual valuation considerations in
determining the value of the land such as location, condition, size, shape,
topography etc. should be taken into consideration.
c) [T]he hypothetical sale should assume the occupation of the land;
Practical Note – The valuer should should have regard to the fact that the land is
occupied at the date the valuation is returned. The existing tenants can be
regarded to still be in occupation and the centre in operation with businesses
trading with fit out and fittings in place.
d) [T]he hypothetical sale should take into account the likely future occupation of
the land;
Practical Note - The valuer should have regard to the existing occupancy profile as
well as any variation to the occupancy profile. The highest and best use of the land
should be ascertained in accordance with the usual valuation considerations such
as zoning, planning controls etc.
e) [T]he hypothetical sale should assume that the occupation of the land is at
market rates; and
Practical Note - The valuer should have regard to the terms and conditions one
would expect the market to provide for the land when compared with similar land.
This means that the valuer should assess a market rental in line with prevailing
market lease terms and conditions. The valuer can have regard to comparable
evidence including new lettings, options, rent reviews and passing rents.
f)
[T]he rentals being paid under actual leases are likely to be a guide to actual
market rates for occupation.
Practical Note - The valuer should have regard to the actual rentals, lease terms
and conditions in the pool of evidence. If necessary, the valuer can exercise
expertise and judgment in adjusting passing rents to be in line with analysed
market levels.
As a result of the decision by Croft J and the considerations above there is no allowance
made to the capitalisation rate adopted for vacant to-let allowances on the premise that
there are no leases in place.
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Rent analysis
Valuers should take into account rental schedules and outgoings provided by centre
management in order to make a determination of market rentals.
The following information should be considered:
a) Passing rents
 Conduct analysis to establish whether net or gross.
 Tenancy types may vary – major versus specialty.
 Define what method is to be adopted. If not net, must adopt gross basis.
Detailed outgoing information required to accurately assess net rents
where rents are either gross or part gross (information is critical for
majors and mini majors).
 Establish passing net/gross rents per square metre.
b) New lettings
 Conduct analysis to establish whether net or gross.
 Establish analysed net/gross rental levels per square metre.
c) Incentives
 Where the owner contributes to a fit-out, provides a cash incentive or rent
free period, these incentives need to be investigated and if appropriate
considered in the rental analysis.
 In analysing incentives, note that fit-outs for different categories can
differ markedly for different categories of retail, for example retail versus
food court.
 Allow for incentives over actual lease term/min RTA term 5 years; 15
years for the majors is acceptable.
 Derive analysed effective net/gross rents.
d) Outgoings
 Recoverable (comprising recovered and unrecovered).
 Non–recoverable.
 Owner’s contribution to promotional expense.
 Decide what outgoings are applicable.
 Treatment of actual and applicable outgoings per tenancy category
(major/specialty etc.).
Note: outgoing unit rates or apportionment applicable for various
categories will more than likely vary.
 When reconciling the outgoings, be aware that the total outgoings on the
tenancy schedule may not equate to the total audited or budgeted
outgoings. However, the assessed outgoings should reconcile with the
audited or budgeted outgoings as illustrated in the outgoings template.
 Land tax reported should be checked against the relevant site value and
the current land tax rates of scale in place.
e) Level charts
 Establish charts through analysis of benchmark market evidence and
conditions.
 Subject centre or other comparable evidence.
 Establish shop categories – major/mini major/specialty/kiosk etc.
 Establish shop ‘location grading’ within centre – very good/good/average/
poor/outside/kiosk/ATM etc. (per level).
 Produce ‘rent level’ chart – including category/location (including
level)/size (increments) and other value drivers (corner/shape + or -/
exposure + or -/ etc.).
 Produce ‘outgoing level’ chart – including category/location (inc level)
/size (increments).
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Market rent
In accordance with the CIV principles above, the approach is to adopt a market rent for
each occupancy. The passing rentals may be used as evidence of the ability to let the
premises and prevailing market conditions. Analysis of new lettings, rent reviews and
inducements can be used to benchmark the passing rents and adopt a market rental.
Additional information such as tenancy mix and MAT are indicators of market
conditions and can be used to set market rents.
Applying market rent
1. Consider a pool of prospective tenants including those in occupation.
2. Apply rent in line with analysis reflecting location, frontage, configuration,
exposure, size and other factors such as tenancy mix, MAT and/or shop
grading/categories.
3. This may lead to some passing rentals staying the same or being adjusted up or
down.
4. Apply market rents to vacant areas..
Vacancy allowance
Vacancy allowance is an allowance in the gross/net income to reflect a proportion of
time when some shops are vacant. Regardless of the quality of management there will be
at times some level of vacancy that affects the net income on an ongoing or perpetual
basis. Such an allowance is considered appropriate.
This allowance can be adopted as a percentage of the net or gross market rent. Leasing
expenses can also be reflected as long as there is no doubling of the allowances in the
percentage adopted.
Example:
A vacancy rate of 2.0 per cent or 400 square metres from a total net leasable area of
20,000 square metres is assessed as having a perpetual risk of vacancy.
If this 2 per cent vacancy rate is expected to be the average through the next year, a
vacancy allowance of $200,000 (adopting a market rent of $500 per square metre) should
be deducted from potential rent when assessing income.
Capital expenditure allowances
Capital expenditure is not included under general maintenance and repair items.
It is more often associated with replacement of items or alterations to the centre that
enhances the centre’s income generation capability. Usually, a sinking fund is used to
account for such costs.
The market place usually reflects this in the analysed yield, which is usually referred to
as an ‘initial yield’. An allowance for capital expenditure in CIV will have to be dealt with
on a case-by-case basis and valuers should substantiate the allowance with sufficient
detail and reasoning.
Expenditure associated with expansion or additions are capital works and should not be
reflected in the assessment.
This allowance applies only to the calculation of CIV and not estimated annual value
(EAV). Refer to comments below relating to EAV.
Guidelines on Valuation Methodology for Shopping Centres – August 2011
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Victorian Statutory Revaluation
Note:
The company’s annual return is often available on the company’s website or filed with
the Australian Securities Exchange (ASX) and it may provide a market valuation. While
this valuation is not a statutory valuation and is used for a different purpose, it may
provide benefits to the accuracy of your rating assessment.
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Estimated annual value
In accordance with Section 2 of the Valuation of Land Act 1960, the EAV of any land
means the rent the land might reasonably be expected to be let for from year to year
(free of all usual tenants' rates and taxes) less:
(a) the probable annual average cost of insurance and other expenses (if any) necessary
to maintain the land in a state to command that rent (but not including the cost of
rates and charges under the Local Government Act 1989); and
(b) the land tax that would be payable if that land were the only land owned (single
holding basis).
An example of the recommended approach to calculating EAV is as follows:
Assessed market rent
$50,000
Add assessed recoverable outgoings
$10,000
Assessed gross rent
$60,000
Less allowable outgoings
(Recov. $10,000 and non-recov. $5,000)
$15,000
Assessed net rent
$45,000
Add council rates
$ 2,000
EAV
$47,000
In accordance with Section (2A)(1) of the Valuation of Land Act 1960, in determining
estimated annual value no deduction is to be made for:
(a) any provision, allowance or notional contribution to a sinking fund for the renewal or
replacement of any building, fitting, fixture or other improvement on that land; or
(b) any provision or allowance or setting aside of an amount for depreciation of any
building, fitting, fixture or other improvement on that land.
Sales analysis
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In carrying out a sales analysis the first step for the valuer is to verify the sale price.
The agent and/or solicitor is the point of contact to ascertain this information.
The valuer should ascertain if the sale represents a 100 per cent share or a part
share.
The valuer should also ascertain if any other component is included in the sale price,
such as any management rights.
The sale should be fully analysed on the basis of market rentals. In most cases,
however, limited lease details are disclosed and an analysed passing yield may be the
best indicator.
The valuer needs to be aware that there are different yields and terminology in the
market place; for example, the market yield also known as an equivalent yield does
not allow for any capital adjustments, whereas the initial yield does allow for capital
adjustments.
It is recommended that the template used for calculating the CIV is also used in the
analysis of sales. In this way the methodology applied to analyse the sales is
consistent with the methodology applied in the valuation of the subject property.
That is, where allowances are made ‘below the line’ (that is after the market yield has
been applied to the net income) such as for capital expenditure in the valuation, the
comparable sales ought be similarly adjusted to allow comparable yield to be
derived.
Guidelines on Valuation Methodology for Shopping Centres – August 2011
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