Physical details 4,500 sq. m. site with abt. 1,300 sq m. n.l.a.; 600 sq. m. IGS supermarket, 8 speciality shops on avera

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Physical details
4,500 sq. m. site with abt. 1,300 sq m. n.l.a.; 600 sq. m. IGS
supermarket, 8 speciality shops on average 65 sq. m., 62 open car
parks, approx. 20 years old. Condition fair but some maintenance
and refurbishment now required, in part to enhance overall
condition but also to address certain compliance issues
(anticipated cost : $800,000).
Current financial performance
When fully leased, the property might generate a nett return of
roughly 5.5 percent, which, in light of the market's overall
appreciation, may appear to be a bit excessive. Overall, the
outgoings (around $115/n.l.a.) are about average for that sort of
asset.
Current tenancies and management
Two of the specialty shops are currently vacant – one for the
last 2 months, a second (which is in a quite difficult location)
within the centre has been vacant for 5 months. The losses for
these vacancies are net $3000 per month and $4400 per month
respectively. The leasing market for such shops in that area is
sound. Incentives to secure a suitable tenant could be anticipated
at about 4 months’ rent free on a 5 year lease. Leasing up
commission (one month) would also be required.
The current tenancy mix is appropriate – all offering retail,
consumer goods and services. Trade figures are not available for
the specialist shops but, except for the two vacancies, tenant
turnover has been quite low and consumer traffic is stable, though
not substantially improving.
Market conditions and
comparisons/competition
These types of centres are currently attracting strong market
sales demand with capitalisation rates ranging between of 4.75% and
7% identified across a range of comparable properties.
The centre has good location, exposure and access. However the
surrounding area is mature and there is little catchment growth
likely and new centres in the wide location may well provide
further competition into the future.
Current rentals and trading
conditions
The major trader has a 15 year lease on a percentage turnover
rent which is on a net basis. The other speciality shops are on
monthly rents and on leases ranging from 3 to 7 years. WALE across
the speciality shops is 3 years (not accounting for current
vacancies).
Current rents achieved are close to market and rent review
mechanisms in place are comparable to similar properties in the
region. The exception here relates to two of the occupied shops
where, because of existing lease arrangements provide a profit
rental to the tenants amounting to $15,000 per annum per tenant, a
situation which will continue until those leases expire in 3 years’
time.
Exercise 1 Question
Based only on the information provided, list out and briefly
elaborate on key observations, regarding this sub-sector and, this
property in particular, which are going to influence/ help
determine your final valuation.
Include in your answer how you plan to recognise / adapt your
assessment to reflect immediate and longer term challenges/issues
facing this property – viz vacancies, profit rents, immediate
maintenance and required upgrades and other matters.(For each,
briefly describe the impact qualitatively and, where relevant and
possible, quantitatively on capital value).