Commercial Office Building Valuation Essay

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(1)Valuation of building

In the report, there is 4 storeys building in Parramatta and in order to do its valuation it is very important to obtain and analyse the market information. Analysis of information like size of the building, its proximity to any area with high footfall are some of the key factors that need to be taken in to consideration to do entire valuation of the building (Rogers, Wong and Nelson, 2017). As, it can be observed from the available information that there are 7 storeys building in the 9 George street, Parramatta whose value is $24,500,000. This building is old and located at centre of city with a good parking facility. The mentioned building is located in the CBD are which is known as one commercial area of the Sydney. Proximity to such kind of large commercial area is one of the most important factor that is playing crucial role in high valuation of the building. Net rent charged on the per square is $1604400 on annual basis. It can be said that the rent amount is also very high along with the building value

On the other hand, there is another real estate building in the Parramatta which is of 4 storeys. This building is also very old and was built in 1984. It has ground floor and include a restaurant. A parking facility is available in the nearby area. Value of this building is $6,500,000. Value of the real estate building is low because it is not nearby to any commercial area. Rent amount charged per square on a building on a yearly basis is $4,32,576.

There is another building in the same area which was built in 1980. Mentioned building offer 7 levels out of which 6 are used for the commercial purpose. It is closer to CBD which is also known as Sydney central business district. It is the commercial centre of the Sydney which is one of the most populous city of Australia (Li, and et.al., 2016). Value of the building is $16,250,000 which is higher then above discussed alternatives. This is because it is located in proximity of the commercial area. Hence, definitely price will be high.

4 storey building located in Parramatta have multiple qualities that can make it people choice. It can be observed that at entry on premises of the building there is Grey Marble and ceramic tile is fixed on the areas where separate path for pedestrian is prepared. On remaining floor commercial grade carpeting is done. On ceiling lot of work is done as plasterboard is placed and within that lights are fitted like seen in shops. This is done to give attractive look to the rooms. Apart from this, on bathroom also there are tiles which make it attractive (Rogers,  2016). On first floor maroon colour grading is done which make area very attractive for the people. Apart from this, lift facility is also available through which people can come and go without any problem as they do not need to go to storey through stairs.

Building sales value must be nearby to $6,500,000 because it is not located near any Sydney commercial area and due to this reason, its value is not so high in the market. Building located in 96 Phillip Street, Parramatta sales value is $6,500,000. This building is inferior in terms of size and age and due to this reason 4 storey building located in Parramatta value must be higher then $6,500,000. Value of building must be $8,500,000 and rent amount charged on it must be $5,66,666. It can be said that in appropriate manner building valuation is done because in this regard first of all market valuation is done and thereafter all obtained information are compared with each other (Liow and Ye, 2017). These compared facts are then analysed in systematic way to identify the reason behind the higher value of the buildings. It can be said that in proper manner valuation of building is done.

 In order to make an accurate estimate about the return gained on the real estate capitalization rate is used by the business firms. in present case capitalization rate of 11% is taken into account.

Table 1Area of the building and rent amount of stories

In the above table it can be said that size of storey of building change with increase in the level. In order to do income evaluation on basis of income from property rental income on annual basis is taken in to account.  Capitalization rate of 11% is applied on the total rent amount to estimate overall value of the asset. On application of method it is identified that overall value of the asset is $904545455 which is high and, on this basis, it can be said that asset has potential to generate higher return on the investment amount.

(2) PV adjustments

Table 2Present value of cash flow at 11%

Table 3Level 1

Table 4Level 2

(3) Unit of value approach

Table 5Unit of value approach

Present value approach reflects that present value given above is in alignment to the other buildings annual rental value. Rate per square is also in alignment to the competitor’s estate property.

(4) Factual analysis of Parramatta office market

It is observed that supply of new offices in the Parramatta remain till the end of 2020. It is expected that multiple projects that are currently in operation will be completed. In current time period overall space covered by the offices in the Parramatta is 719547 square meter and it is anticipated that it may rise to the 1 million square meter by 2022 (Lyon,  2017). In past couple of years many new development happened in the relevant area and according to requirement still there is shortage of real estate buildings that are required by the corporate.

Leasing Market

One of the main problems that is observed in the Parramatta is that there was lack of quality and sufficient floor space and due to this reason mentioned area remain in category of two tiered leasing market. Other main and very important thing that is observed is that relative to other metropolitan market incentive is comparatively very low in the relevant market. It is estimated that in the current time period new leases are made up of 300sqm or 900sqm.  In other words it can be said that most of premises are of 300 or 900 square meter. Facts indicated that large number of tenants in the relevant geographic area are renewing their lease time period. In past couple of years tenancy also increase in the Parramatta (Stubkjaer, 2017). Average A Grade net face rents are now ranging from $520-$590/sqm, and for B Grade properties the net face rents range from $435-$510/sqm. It is observed that usually incentive in the mentioned geographic area remain in range of  15 to 20 percent for category A and B property. It is expected that in the upcoming time period tenancy in the Parramatta will increase at rapid pace due to fast commercialization of relevant area.

Investment Market

As per available facts it can be observed that investment overall volume to 2 billion. This entire amount is transacted to the metro area of the one of the most populated city of Australia which is Sydney. If this time period is compared with same duration of previous year then it can be observed that this amount was $1.9 billion. Important attention grabbing fact is that Sydney metro station is one the most busy market in the relevant city as it receive large number of footfalls in single day. Interesting fact is that buyer activity from Hong Kong increased at rapid pace in the Australia. In year 2018 it was observed that two out of 45 sales was recorded as Hong Kong investors (Yardney., 2019). There are number of reasons due to which investment is increased in the Sydney metro market. One of main reason is that investors are earning higher return in the Sydney metro area if they develop property in its nearby area. In Sydney rate of return offered by the metro office market is higher than any area in the Sydney. Hence, it can be said that Parramatta is the one of best option for investors.

CONCLUSION

On the basis of the above discussion, it is concluded that real estate value is very high in Australia. Real estate property that is near Sydney metro satiation has a very high value then the properties that are located in other areas of the mentioned city. It is also concluded that foreign investment is also made in real estate in Australia but that is at low level. It is expected that in the upcoming time period real estate property value in Australia will increase at rapid pace. In Australia, heavy investment is made in infrastructure in Sydney and due to this reason also above-given anticipation is made.

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