Property Valuation Exercise: London - Essay Example

Then there is valuation based on the type of property: whether commercial or residential. Generally, for a given location, the valuation of commercial property is much higher than residential property. The profession and income levels of the residents also influence the value of a property to a certain extent. Case Study : London "Th Isle of Dogs now centres around Central Wharf (Canary Wharf refers to both the r, the tube station, and the offices in its immediate vicinity). Canary Wharf is London's financial district. Businesses located in Canary Wharf include Citibank, Credit Suisse, Barclays Bank, and HSBC. Businesses from other industries, such as BP and Reuters, have also been located in the area, but it is still dominated by the financial sector. This means that a significant proportion of the residents of E14 work in the financial sector, and earn high wages. It also means that the types of property here are predominantly new properties (built after the regeneration in 1981) designed for young executives rather than families."1 Average Monthly Rent in London (http://www.net-lettings.co.uk/)3 The above table shows the average estimated monthly rentals in different parts of London. Area 1 covers localities like Kensington, Bloomsbury, St. John's Wood, Green Park, Westminster, and other central areas. Being centrally located and having access to all amenities, this area is the highest-valued one in terms of rentals. Area 2 covers the localities just adjoining Area 1. Kilburn, West Hampstead, Isle of Dogs, Elephant and Castle, Kennington, Dulwich, and Brentford are the areas covered under this category. In the south, it extends to Raynes Park and Merton Park. In the northwest, Woodford seems to be covered under this category, while surrounding areas do not belong to this category. Here, the rentals are slightly lower as compared to Area 1. Similarly, Area 3 is marked by the localities bordering localities under Area 2. Prominent among these are Kensel Garden, Strafford, Wallworth in the central area, Stanmore, Totteridge, Cockfosters in the northeast, and Strawberry Hill and Kingston in the south. There are a few areas like Surbiton, Bickley, and Bromley, that Bromleyut in the south among Area 4 and Area 5 categories. Area 4 consists of Bartnet, Endfield, Ponders End in the north and West Wickham and Ewell in the south. This category is spread out in all four directions and can be broadly said to be on the periphery of the city. A few exceptions to this would be areas like Nunhead, Ladywell, etc., that are located in almost central areas. Area 5 is almost on the outskirts of the city and thus lowest in terms of rent/yields. Recent Changes in Office Rentals Average office rents in the CBD (Central Business District) have recently fallen almost 38 % to $ 777.40 per sq. m, making it Europe's sixth most expensive business district. While London's Mayfair district is a premium business center and can be compared to the Triangle d'Orthe area of Paris , rents have recently fallen in this area too. Even with a 45 % fall in its rental values, West End remains the most expensive office area in Europe to date with rental values of 961 euros per sq m.4 Conclusion Thus, while agreeing, an owner and tenant have to keep many factors in mind. While the importance of factors like location and amenities cannot be ruled out, market conditions will also have to be kept in mind. In the past year, rentals have fallen by almost 50 % due to a plethora of reasons; changes in the subprime lending rates and recession being the major ones. Even after the property has been let out for a certain period, there could be some market forces that might compel the owner to modify the agreement. This could mean continuing with the same tenant at a lower rent or reducing the term of the agreement. The owner must also keep in mind the income and financial capacity of the tenant. While commercial property in the premium areas will always be in demand, the same might not hold for residual areas, especially localities in the prime areas or the vicinity of the central business district. People might just prefer to pay lower rent and move to Area 4 or Area 5. They might just have to spend a little more time commuting to and fro from the workplace, but it might be worth the effort.  Read More