The intention of this paper is to provide general background on pertinent matters relating to office developments and related valuation matters across the Australian market. Through the paper we cover off on some common questions, issues, and factors which should be considered when undertaking development feasibilities or involving yourself with development valuations in general.
Given the range of topics that need to be addressed we’ve decided to separate the paper into two parts. This first edition, Part One, is focused on ‘end realisation’ matters. Part Two, which will be released shortly, covers wider feasibility and return benchmarking topics.
The ‘process risk’ with regard to office development valuations is considered high. The wide variability across the market when interpreting key aspects of development valuations further increases this process risk. It is critical to set the correct benchmarks and allowances early in the process to prevent unwanted surprises and adverse profit/return impacts.
Through the process of undertaking many CBD and metropolitan office development valuations, some of these questions can arise quite commonly and many of the considerations within this paper reflect matters discussed and covered off with many development and finance clients. They are not often well understood and can cause confusion. Additionally, industry standards provide only limited guidance on practical application of key factors / allowances.
Whilst it is imperative in the competitive development market to maintain confidentiality between projects, it is important to have a good coverage of project experience to inform these views.
This paper is not intended to explain these matters in detail, merely outline comments which may be of assistance or provide a reference point for further discussion. Cushman & Wakefield Valuation & Advisory is available to discuss all of these matters in more detail – send us an email here to schedule a discussion.