What goes round comes round - or does it methodology for valuing over-rented property in the UK

Property investment markets are cyclical, but each cycle is different; whilst it is possible to learn from previous events, similarities can be deceiving. In the late 1980s commercial property values in the UK fell by up to 50% with levels of over-renting reaching over 80% in some cases (Baum & Crosby, 1995). This led to a critical re-appraisal of the adequacy of valuation methods (e.g. Crosby and Goodchild, 1992), which exposed technical and methodological limitations of established practice (Adams and Booth, 1996). Today, the scenario looks similar. Significant falls in commercial rental values have left investors exposed to tenantsí covenants once more and clients are once again questioning the accuracy of valuations (LSH, 2009). However, these similarities are deceptive and approaches advocated in the early 1990s require readjustment. This paper presents a critical review of market dynamics in relation to the current economic environment, legal and practice context, informed by literature, interviews and a questionnaire, in order to re-appraise appropriate approaches to the valuation of over-rented properties. This paper will explore documented key market changes in lease practice and landlord and tenant relationships (for example, French & Jones, 2010) which impact on valuation together with the impact of low interest rate (Cross, 2010) and the void of bank financing which impact risk and return aspirations. These factors and the requirement for valuers to mark-to-market robustly and expeditiously (French, 2010; RICS & IPD, 2008) combine to create the need to once more re-appraise approaches to investment valuation methodology, including the approach to risk and uncertainty.