At Vickery Holman, we regularly undertake Red Book valuations for properties held within pension funds. These valuations form part of the wider actuarial valuation process, which assesses whether a pension scheme has sufficient assets to meet its long-term liabilities. Under the Statutory Funding Objective, pension schemes must obtain updated property valuations every three years.
Pension funds typically invest in a range of asset types, and commercial property such as industrial units, offices and retail premises often forms part of these holdings. As such, each property must be valued by a RICS Registered Valuer in accordance with the RICS Valuation – Global Standards. Our reports include a schedule of comparable evidence, a clear valuation methodology, and commentary on market conditions to ensure transparency and compliance for trustees, advisors and regulators.
We were instructed to provide a Red Book valuation of an industrial unit located in Tavistock, held within a pension fund. The client required an opinion of both Market Rent and Market Value to support their reporting requirements.
We inspected and measured the property on a Gross Internal Area (GIA) basis in line with the RICS Code of Measuring Practice. When inspecting the property we considered key factors that influence value for industrial accommodation such as condition, specification, roller shutter door provision, eaves height, layout, access and location.
We then reviewed the occupational lease to understand the passing rent, repairing obligations and remaining lease term. This allowed us to assess how the lease compared with typical market terms for similar industrial units in the local area. To determine the Market Rent, we sourced and analysed recent comparable evidence of industrial lettings in Tavistock, taking into account the differences in specification and location. The property had been recently let (following a period of being openly marketed) and the comparable evidence supported that the property was rack rented, meaning that the passing rent reflected the Market Rent.
As the property was occupied under a lease, we undertook the income approach and investment method of valuation to determine our opinion of Market Value. As a result, we sourced and analysed investment transactions to determine an appropriate yield for the subject property. Given that the property was let at Market Rent, we capitalised the Market rent in perpetuity at the adopted yield. After deducting purchasers’ costs, we arrived at our opinion of Market Value.
We provided the client with a clear and comprehensive Red Book valuation report, setting out our opinions of Market Rent and Market Value with the supporting comparable evidence and valuation methodology. The property was valued in line with the RICS Valuation – Global Standards, reflected the market conditions at the valuation date, and met the requirements for the client’s pension fund reporting.
