RICS Valuation and Sale Price Correlation Report 2009

Despite a year of growing market uncertainty, valuations in the largest commercial property markets in Europe achieved a high level of accuracy in 2008, with the majority of valuations falling within 10 percent of sale prices, according to the RICS Valuation and Sale Price Report.

With an unprecedented fall in normal market activity and more volatile prices worldwide, last year presented a real test to the skills of property valuers. To assess the performance of the valuation profession, this report compared valuations against sale prices of commercial property in France, Germany, the Netherlands and the UK.

In the Netherlands 62.4 percent of valuations during 2008 were within 10 percent of sale prices (up from 50 percent in 2007) and 85.3 percent within 20 percent. In comparison Germany valued 60 percent of properties within 10 percent of sale prices (up from 47.6 percent) followed by the UK (59.5 percent - down from 60.4 percent), and France (49.3 percent - up from 40.2 percent).

Due to the severe lack of liquidity in the commercial property market, capital values fell across the four major European real estate markets in 2008 with some countries experiencing a more severe correction. None more so than the UK which saw the sharpest decline of -26.3 percent, followed by France where capital growth of -6.0 percent was recorded. The falls experienced by the Netherlands and Germany were more subdued at -1.7 percent and -1.4 percent respectively. 

RICS spokesperson Luay Al-Khatib comments:

"Despite a challenging economic environment, the gap between the sale price of an asset and its preceding valuation has tightened. The dearth of global finance impeded investment activity with the number of transactions declining in most markets.  However, rising yields

attracted greater interest, particularly in the UK where capital values fell sharply. Despite unprecedented market volatility and uncertainty, the evidence suggests that the valuation profession has kept pace with the curve and performed to exceptional standards.”

Commenting on the French market, Jean-Claude Dubois MRICS, President, BNP Paribas Real Estate Valuation :

“In 2008, volumes invested in the commercial property market in France halved. This led to a negative capital growth of -6.0%, although the total return index remained almost stable at -0.9% thanks to strong indexation of the passing rents, translating into a positive income return of +5.4% over the year.

By the end of the year valuations proved challenging as investment yields were rising and rental values were expected to diminish in early 2009. The lack of transactions meant valuers had to rely on limited market evidence. They decided therefore to adopt a prudent stance.

As very few landlords were forced to sell, most of them decided to weather the storm by holding on to their investments until the market bottoms out. Opportunities arose however, as some investors took advantage of this bear market to close on opportunistic deals.”

Commenting on the German market, Daniel Woodhouse MRICS, Director of Valuation, Knight Frank LLP:

“In 2008 valuers faced a particularly challenging task in Germany with relatively little transactional evidence, particularly in the latter half of the year as the impact of the credit crunch deepened. The German market proved more resilient to the impact of the financial crisis than several other European countries with prime stock generally performing better than secondary or tertiary.

According to IPD retail was the only sector with assets sold on average at a price below the preceeding Market Adjusted Valuation. This may be partly due to prevailing economic conditions and also by the exit from the German retail market of overseas investors who had helped drive yields down over recent years.”

Commenting on the Dutch market Mark Fidler MRICS Executive Director, Valuation Advisory, CB Richard Ellis:

“This report reflects 2008 as a difficult year for the Dutch property market. At the beginning of the year sale activity was still reasonable, mainly through some owners exiting the market
and also buyers obliged to complete prearranged transactions.

Beyond the first quarter however the lack of investment activity became dramatically evident. The traditionally more stable Dutch market followed Europe into the financial and property crisis through the rest of the year, with the index ending the year in negative territory. It is no surprise to see in this report that fewer properties were sold above Market Adjusted Value than in 2007.”