Commercial Property Valuation: Parramatta Office Market Assessment

This report presents a comprehensive commercial valuation of real estate properties within the Parramatta office market in Australia. The introduction provides an overview of real estate valuation methods, followed by a detailed analysis of a specific four-story building, comparing it to other properties in the area, including those at 9 George Street and 96 Phillip Street. The report delves into the physical characteristics, rental incomes, and market values of these properties. It includes a capitalization rate analysis, presents present value adjustments, and employs a unit of value approach to assess property worth. A factual analysis of the Parramatta office market is also included, covering supply, leasing trends, and investment activities, providing a comprehensive overview of the current market conditions and future prospects. The conclusion summarizes the key findings, emphasizing the high value of real estate in Australia, especially in proximity to Sydney's metro stations and the impact of foreign investment.

COMMERCIAL
VALUATION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(1)Valuation of building..................................................................................................................1
(2) PV adjustments...........................................................................................................................3
(3) Unit of value approach...............................................................................................................4
(4) Factual analysis of Parramatta office market.............................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Real estate is the one of the fastest growing industry in the Australia. In the current report
valuation of real estate is done in multiple ways. In first part of the report in order to do real
estate valuation other real estate building statistics is discussed in detail. Apart from this,
capitalization value and net present value is also calculated in the report. In the middle part of the
research study unit value analysis is done and at end of the report, factual analysis of Parramatta
is done in the research study. In this way, entire research work is carried out.
(1)Valuation of building
In the report there is 4 storeys building in Parramatta and in order to do its valuation it is very
important to obtain and analyse the market information. Analysis of information like size of
building, its proximity to any area with high footfall are some of the key factors that need to be
taken in to consideration to do entire valuation of the building (Rogers, Wong and Nelson, 2017).
As, it can be observed from the available information that there are 7 storeys building in the 9
George street, Parramatta whose value is $24,500,000. This building is old and located at centre
of city with good parking facility. Mentioned building is located in the CBD are which is known
as one commercial area of the Sydney. Proximity to such kind of large commercial area is the
one of the most important factor that is playing crucial role in high valuation of the building. Net
rent charged on the per square is $1604400 on annual basis. It can be said that rent amount is
also very high along with building value
On other hand, there is another real estate building in the Parramatta which is of 4
storeys. This building is also very old and was built in 1984. It has ground floor and include
restaurant. Parking facility is available in the nearby area. Value of this building is $6,500,000.
Value of the real estate building is low because it is not nearby to any commercial area. Rent
amount charged per square on building on yearly basis is $4,32,576.
There is another building in the same area which was built in 1980. Mentioned building
offer 7 levels out of which 6 are used for the commercial purpose. It is closer to CBD which is
also known as Sydney central business district. It is the commercial centre of the Sydney which
is one of the most populous city of Australia (Li, and et.al., 2016). Value of the building is
$16,250,000 which is higher then above discussed alternatives. This is because it is located in
proximity of the commercial area. Hence, definitely price will be high.
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4 storey building located in Parramatta have multiple qualities that can make it people
choice. It can be observed that at entry on premises of the building there is Grey Marble and
ceramic tile is fixed on the areas where separate path for pedestrian is prepared. On remaining
floor commercial grade carpeting is done. On ceiling lot of work is done as plasterboard is
placed and within that lights are fitted like seen in shops. This is done to give attractive look to
the rooms. Apart from this, on bathroom also there are tiles which make it attractive (Rogers,
2016). On first floor maroon colour grading is done which make area very attractive for the
people. Apart from this, lift facility is also available through which people can come and go
without any problem as they do not need to go to storey through stairs.
Building sales value must be nearby to $6,500,000 because it is not located near any
Sydney commercial area and due to this reason, its value is not so high in the market. Building
located in 96 Phillip street, Parramatta sales value is $6,500,000. This building is inferior in
terms of size and age and due to this reason 4 storey building located in Parramatta value must be
higher then $6,500,000. Value of building must be $8,500,000 and rent amount charged on it
must be $5,66,666. It can be said that in appropriate manner building valuation is done because
in this regard first of all market valuation is done and thereafter all obtained information are
compared with each other (Liow and Ye, 2017). These compared facts are then analysed in
systematic way to identify reason behind higher value of the buildings. It can be said that in
proper manner valuation of building is done.
In order to make an accurate estimate about the return gained on the real estate
capitalization rate is used by the business firms. in present case capitalization rate of 11% is
taken into account.
Table 1Area of the building and rent amount of storeys
Ground Floor 925.00
sqm.
1st Level 980.00
sqm
2nd Level 985.00
sqm
3rd Level 1,065.00
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sqm
Total 3,955.00
sqm
Computer Services Inc. $161,875
Health Admin Corp. $294,000
ING Direct $246,250
Telstra (heads of agreement) $292,875
Total rent $995,000
Net annual income $995,000
Capitalization rate 11%
Value 904545455
In the above table it can be said that size of storey of building change with increase in the level.
In order to do income evaluation on basis of income from property rental income on annual basis
is taken in to account. Capitalization rate of 11% is applied on the total rent amount to estimate
overall value of the asset. On application of method it is identified that overall value of the asset
is $904545455 which is high and, on this basis, it can be said that asset has potential to generate
higher return on the investment amount.
(2) PV adjustments
Table 2Present value of cash flow at 11%
Cash flow 904545455
PV factor 11%
Present value of cash flow 814905814.9
Table 3Level 1
Year Cash flow
PV
factor
Cash
flow
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1 300468 0.900901 270691.9
2 300468 0.811622 243866.6
3 300468 0.731191 219699.6
4 300468 0.658731 197927.6
Total
734258.1
Table 4Level 2
Year Cash flow
PV
factor
Cash
flow
1 246250 0.900901 221846.8
2 246250 0.811622 199862
3 246250 0.731191 180055.9
4 246250 0.658731 162212.5
Total 763977.3
(3) Unit of value approach
Table 5Unit of value approach
Comparable Annual
rental
Gross
floor
area
Rate
m2,
p.a., net
9 George Street,
Parramatta
1,604,400 5476 $292.99
96 Phillip Street,
Parramatta
$432,576 1815 $238.33
10 Phillip Street,
Parramatta
$930,250 4632 $200.83
42 Philip street, $995,000 $251.58
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Parramatta 3955
Present value approach reflects that present value given above is in alignment to the other
buildings annual rental value. Rate per square is also in alignment to the competitor’s estate
property.
(4) Factual analysis of Parramatta office market
It is observed that supply of new offices in the Parramatta remain till the end of 2020. It is
expected that multiple projects that are currently in operation will be completed. In current time
period overall space covered by the offices in the Parramatta is 719547 square meter and it is
anticipated that it may rise to the 1 million square meter by 2022 (Lyon, 2017). In past couple
of years many new development happened in the relevant area and according to requirement
still there is shortage of real estate buildings that are required by the corporate.
Leasing Market
One of the main problems that is observed in the Parramatta is that there was lack of quality and
sufficient floor space and due to this reason mentioned area remain in category of two tiered
leasing market. Other main and very important thing that is observed is that relative to other
metropolitan market incentive is comparatively very low in the relevant market. It is estimated
that in the current time period new leases are made up of 300sqm or 900sqm. In other words it
can be said that most of premises are of 300 or 900 square meter. Facts indicated that large
number of tenants in the relevant geographic area are renewing their lease time period. In past
couple of years tenancy also increase in the Parramatta (Stubkjaer, 2017). Average A Grade net
face rents are now ranging from $520-$590/sqm, and for B Grade properties the net face rents
range from $435-$510/sqm. It is observed that usually incentive in the mentioned geographic
area remain in range of 15 to 20 percent for category A and B property. It is expected that in the
upcoming time period tenancy in the Parramatta will increase at rapid pace due to fast
commercialization of relevant area.
Investment Market
As per available facts it can be observed that investment overall volume to 2 billion. This entire
amount is transacted to the metro area of the one of the most populated city of Australia which is
Sydney. If this time period is compared with same duration of previous year then it can be
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observed that this amount was $1.9 billion. Important attention grabbing fact is that Sydney
metro station is one the most busy market in the relevant city as it receive large number of
footfalls in single day. Interesting fact is that buyer activity from Hong Kong increased at rapid
pace in the Australia. In year 2018 it was observed that two out of 45 sales was recorded as Hong
Kong investors (Yardney., 2019). There are number of reasons due to which investment is
increased in the Sydney metro market. One of main reason is that investors are earning higher
return in the Sydney metro area if they develop property in its nearby area. In Sydney rate of
return offered by the metro office market is higher than any area in the Sydney. Hence, it can be
said that Parramatta is the one of best option for investors.
CONCLUSION
On basis of above discussion it is concluded that real estate value is very high in the
Australia. Real estate property that is near Sydney metro satiation has a very high value then the
properties that are located in other areas of mentioned city. It is also concluded that foreign
investment is also made in real estate in Australia but that is at low level. It is expected that in
the upcoming time period real estate property value in the Australia will increase at rapid pace.
In Australia heavy investment is made on infrastructure in Sydney and due to this reason also
above given anticipation is made.
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REFERENCES
Books and Journals
Li, M. and et.al., 2016. Visualization-aided exploration of the real estate data. In Australasian
Database Conference (pp. 435-439). Springer, Cham.
Liow, K. H., and Ye, Q. 2017. Switching regime beta analysis of global financial crisis:
Evidence from international public real estate markets. Journal of Real Estate
Research. 39(1). 127-164.
Liow, K. H., Zhou, X., and Ye, Q. 2015. Correlation dynamics and determinants in international
securitized real estate markets. Real Estate Economics. 43(3). 537-585.
Lyon, B. 2017. Medieval real estate developments and freedom. In The Medieval Frontiers of
Latin Christendom (pp. 77-91). Routledge.
Rogers, D. 2016. Uploading real estate: Home as a digital, global commodity. In Housing and
Home Unbound (pp. 37-52). Routledge.
Rogers, D., Wong, A., and Nelson, J. 2017. Public perceptions of foreign and Chinese real estate
investment: intercultural relations in Global Sydney. Australian Geographer. 48(4). 437-
455.
Rogers, D., Wong, A., and Nelson, J. 2017. Public perceptions of foreign and Chinese real estate
investment: intercultural relations in Global Sydney. Australian Geographer. 48(4). 437-
455.
Stubkjær, E. 2017. Modelling real property transactions. In The Ontology and Modelling of Real
Estate Transactions (pp. 1-21). Routledge.
Stubkjaer, E. 2017. The ontology and modelling of real estate transactions. Routledge.
Online
Yardney ., M., 2019. [Online]. 13 interesting facts property facts about Australia you should
know. Available through:< https://propertyupdate.com.au/13-interesting-property-facts-
about-australia-you-should-know/>.
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