Valuing in a Vacuum

Property Week Article
Dated: 08.05.2009

“VALUING IN A VACUUM”

After four decades negotiating rent reviews and lease renewals I thought I was getting quite good at accurately pinpointing market rental values in a particular quarter, and even a month, especially looking back at a particular valuation date with 3 to 6 months of hindsight.

For the first time in my career I actually have to admit to having to use some guess work in finding the right answer on each and every one of the Central London rent reviews I am handling.

To start with some facts:

1 There is little or no evidence in the market place which shows any dramatic fall in rents from the top of the market in June 2007 to June 2008 - most of the June 2008 settlements were at or near June 2007 figures.

2 We know that the market that existed in September 2008 is no longer. Those top rents of June 2007 to June 2008 had by March 2009 fallen by 20% or, in some cases, even 30% or more.

3 There has been little or no activity in the Central London market since the collapse of Lehman Brothers on 15 September 2008.

Corporates that we know and act for have been discussing downsizing but very few have “pushed the button”.

Many Tenants are overwhelmed with space and staff are floating about in their offices but again haven't taken any action as they don't know how deep the recession is going to be nor how long it will last.

Accordingly the demand for offices in Central London has ground to a standstill but we have little doubt that it will kickstart as soon as those Companies make decisions and remember, that when companies are downsizing, they are not as conscious about the rate per square foot they are paying especially when they are halving their outgoings by halving the space they occupy.

So where is the real problem?

That is knowing where, between September 2008 and March 2009, the market fell to on a month by month basis.

Did the market fall off a cliff on 15 September 2008 and should the rents be adjusted down to today's level from 16 September 2008 onwards?

Did they gradually fall on a month by month basis from 15 September 2008 to March 2009? Or are there other answers?

Or did the real fall take effect in December, January, February, March 2009?

This is a conundrum facing all rent review Surveyors and will probably be the cause of literally hundreds of Arbitrations where a Tenants' Surveyor sees the former and the Landlords' Surveyor the latter.

It is my prediction that the most difficult time ever to predict rents in the history of rent reviews will be the quarter between September 2008 and December 2008.

There is one major West End review in which we are involved which will, when settled show rents on three floors in the same building on July 2008, September quarter 2008 and December quarter 2008 - so watch this space for the quarterly fall.

Life isn't meant to be easy and this is a problem which faces all of us.

Let's hope we can take a sensible line and settle somewhere in between the best case scenario for the Landlord and that of the Tenant, remembering that a fair settlement between Surveyors is where neither party thinks he has won.

Anthony Lorenz, Senior Partner

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