Office

Question 1

What are the important internal features for office buildings?

Answer 1

Air conditioning, electrical system, lifts, fire services, security systems, operating costs, floor space

Question 2

What are the important external features for office buildings?

Answer 2

Location, car parking, local retailers

Question 3

How do you measure an office space?

Answer 3

NLA using PCA Guidelines

Question 4

What are the valuation approaches for office?

Answer 4

Capitalisation of net income (primary for small properties)
Discounted cash flow (primary method for large properties)
Direct comparison (support method)

Question 5

What is the equivalent yield? (market yield)

Answer 5

(Market rent - non-recoverable) / sale price (+/- below the line adjustments)

Question 6

What is the reversionary yield?

Answer 6

(Market rent - non-recoverable) / sale price

Recessionary yield equates to a passing yield if it was at market levels. Doesn’t allow for letting up and vacancy.

Question 7

What are the two types advertising rights when it comes to office buildings?

Answer 7

Signage rights (a prominent space where an advertiser might place an approved sign) and naming rights (carry the right to place the approved name on the building)

Question 8

What is a two tiered rental market? (office)

Answer 8

Sitting tenant generally paying more than a new tenant seeking space with vacant possession

Question 9

Market rent definition

Answer 9

The current annual open market rental value of the demised premises based on a lease (exclusive of any incentives and
allowances) between a willing but not anxious Lessor and a willing but not anxious Lessee

Question 10

What is commercial 1 zone for?

Answer 10

Mixed use commercial, retail, office, entertainment, higher-density residential

Question 11

What is commercial 2 zone for?

Answer 11

commercial uses for office, bulky goods (some manufacturing and industry), retail

Question 12

What is the initial yield? (passing yield)

Answer 12

(Passing rent - non-recoverable) / sale price

Question 13

What is IRR and how is it calculated

Answer 13

Internal rate of return is the annualised return of something based off the initial purchase?
Calculated by making the NPV = 0. So whatever discount rate will apply and make the NPV = 0 will be the IRR.

Question 14

When is a DCF used as a method of valuation?

Answer 14

Mainly with shopping centres or multi tenanted office buildingsW

Question 15

What outgoings rate would you typically expect for an office space?

Answer 15

It depends but typically $50-100/sqm - often smaller spaces, strata fees etc - outgoings high

Question 16

What are the major value drivers of office?

Answer 16

Fitout, size, location (regarding access for workers - closer to public transport), Green star rating (change rooms, bike racks, solar)

Question 17

How is NLA measured and what does/doesnt it include?

Answer 17

Measured on internal face of permanent internal walls. Excludes stairs, accessways, lobbies, toilets, tea rooms (same as GLAR)

Question 18

How has the office market been?

Answer 18

Prime yields remain steady, secondary yields continue to soften.
All rents across Melbourne have softened in the past year, some of them upwards of 10%. Eastern core is the strongest. Incentives are around 40-50% and the market yields are around 6-7%.
Obviously the office market suffered during COVID