How We Value

Valuation methodology

Three approaches to value, cross-referenced against four methods of valuation. Where they converge, the opinion is sound. Where they diverge, the reason is explained rather than averaged away.

Three approaches

Income Approach

Based on the principle that the value of a property is directly related to the income it will produce, accounting for occupancy, rental rates, operating expenses and capitalization rates.

→ Direct Capitalization
→ Discounted Cash Flow (DCF)

Direct Comparison

Based on the principle of substitution: a prudent purchaser would pay no more than the cost of an equally desirable alternative. Recent comparable sales are adjusted for location, size, condition and market conditions.

→ Comparable sales analysis
→ Adjusted per-square-foot benchmarks

Cost Approach

Based on the principle that value should not exceed the cost of constructing a substitute of equivalent utility. Estimates current replacement cost less depreciation, plus land value.

→ Replacement cost estimation
→ Accrued depreciation analysis

Four methods

Used together to validate a conclusion rather than to reach four separate ones.

Discounted Cash Flow

Projects future cash flows over a holding period and discounts them to present value at a rate reflecting the risk of achieving them.

Direct Capitalization

Converts a single year's stabilised income expectancy into value using a capitalization rate drawn from market evidence.

Comparable Sales

Analyses recent transactions of similar assets, adjusted for the differences that matter to a buyer.

Replacement Cost

Estimates the cost to construct an equivalent property today, less accrued depreciation, plus the value of the land.