European Valuation Practices initial findings Leonie Koerhuis Msc

European Valuation Practices initial findings Leonie Koerhuis Msc, Ph. D student Tias Nimbas Bus. School Dr Paul Nelisse FRICS RT, Tias Nimbas Business School Prof. Dr. Aart Hordijk MRICS, Tias Nimbas Business School contact: a. c. hordijk@tiasnimbas. edu 22 -Feb-21

Previous Research • European Valuation Practice, Alistair Adair et al, 1995 • Real Estate Valuation in Global Markets, Appraisal Institute, 1996 • Overviews by major Valuation Firms like DTZ, JLL, Colliers, etc. , mostly as of 2000 onwards Conclusion: Relatively Outdated goto menu view | Header and Footer to change this text 22 -Feb-21 2

Why ? • Improve Transparency • Crossborder Comparison • Higher Profile of the Valuation Profession • Stakeholders Demand • Need for Dynamic System, to be updated regularly • “Lonely Planet” of Valuation • Looking for the “True” Capital Growth goto menu view | Header and Footer to change this text 22 -Feb-21 3

For Whom ? • Practitioners • Academics • (International) Investors • Auditors • Financial Institutions • ALM Studies goto menu view | Header and Footer to change this text 22 -Feb-21 4

What ? • Compact Survey, focus on main items • Similarities and Differences in this presentation : - Market Value - Property Rights - Measurement - Lease Conditions - Operating Costs - Transfer Costs - Valuation Methods - Reliability of market evidence goto menu view | Header and Footer to change this text 22 -Feb-21 5

Contributing Countries so far France Germany Italy Netherlands Portugal Russia Spain UK goto menu view | Header and Footer to change this text 22 -Feb-21 6

Market Value Do you apply Market Value (Red Book definition)? 13% 50% Always Mostly 37% goto menu view | Header and Footer to change this text Sometimes 22 -Feb-21 7

Do you use any Other / Alternative Definitions? • Value in Use • Liquidation Value • Fiscal Value • Charte de l'Expertise en Evaluation Immobilière • Fair Value • Private Purchase • Verkehrswert • No goto menu view | Header and Footer to change this text 22 -Feb-21 8

Property Rights Availability Information on property rights is available from the Land Registry 13% 37% 50% Yes, all information Only limited information No goto menu view | Header and Footer to change this text 22 -Feb-21 9

Freehold Property is held freehold 12% 88% Always Mostly goto menu view | Header and Footer to change this text 22 -Feb-21 10

Leasehold Property is held leasehold 13% 88% Sometimes Never goto menu view | Header and Footer to change this text 22 -Feb-21 11

The Regular Approach to Measurement of Surface is: • Gross External Area - Warehouse • Kind of Gross External Area for Construction Permits • Gross Internal Area • Net Usable Area for Leasing • Net Internal Area • ITZA (Retail) • GLA (Gross Leasing Area) • Net Leasable Area • Depending upon the Asset Type • Depending upon which of the 16 Bundesländer goto menu view | Header and Footer to change this text 22 -Feb-21 12

Regular Contractual Lease Period UK Italy - hotel Spain - retail Italy - commercial Portugal - retail Germany Portugal Netherlands Spain - residential Italy - residential Portugal - offices Spain - offices France 0 2 4 6 8 goto menu view | Header and Footer to change this text 10 12 14 16 18 22 -Feb-21 20 13

The following Costs are Incurred by the Tenant / Landlord: Services non energy Services energy Letting fees (including rent review costs) Repairs to the structure landlord Maintenance tenant landlord and tenant Internal repairs Insurance Taxes over rent Local taxes 0% 20% 40% 60% goto menu view | Header and Footer to change this text 80% 100% 22 -Feb-21 14

Transfer Costs are in the following Ranges: • Stamp Duty / Transfer Tax: 0. 8% (France) - 7. 0% (Spain) • VAT: 8. 0% (Spain) - 21. 0% (23% in 2011, Portugal) • Real Estate Agent: 0. 35% (Portugal) - 4. 0% (Italy) • Notary Fees + Registration: 0. 2% (Spain / Portugal) - 6. 2% (France) goto menu view | Header and Footer to change this text 22 -Feb-21 15

Income Approach to Market Value • Calculation Components (i. e. Rental Income, Yield) are similar • Usually 10 or 15 Years DCF • Notable Difference: due to Full Repair Leasing in UK, therefore in the UK most emphasis on Net Yield goto menu view | Header and Footer to change this text 22 -Feb-21 16

Which sources are available for comparable investment and rent transactions? What is the quality of each source? informal network land registry No Yes, but poor property magazines Yes, moderate Yes, good third party database inhouse database 0 0. 2 0. 4 0. 6 goto menu view | Header and Footer to change this text 0. 8 1 1. 2 22 -Feb-21 17

Main Similarities and Differences • Differences - Different Lease Lengths - Operating Costs - Stamp Duty / Transfer Costs • Similarities - Valuation Methods - Underlying Variables - Judgement of Property Magazines Relevancy goto menu view | Header and Footer to change this text 22 -Feb-21 18

Conclusions and next steps • Further research necessary • Expansion with more countries • In-depth analysis of the data • Quantification of the differences - measurement : use of EU NEN 2580 as a norm to adjust space - operating costs : UK as the starting point to adjust - transfer cost : once of correction on the investment • Qualitative - good – poor information : risk premium on the cap/discount rate (? ) - lease length : effective lease length and difference in risk premium (? ) Main goal : looking for the “true” capital growth goto menu view | Header and Footer to change this text 22 -Feb-21 19