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Development Economics

The Economics of Property Development

A property development is an essential operating tool to our client's business, and a medium of investment for financial institutions.

Conventional property developers, having secured an agreement from a company to enter into a lease, will sell the freehold to a financial institution in much the same way as stocks and shares are traded. There is a mature market for commercial property investments where, in order to secure the best terms, the property's pedigree must be of the highest order. CRCL works with such established contacts who know that, by dealing with CRCL they will be purchasing first class property investments.

The investment value of a property is the product of its market rental value and the reciprocal of the negotiated investment yield.

For Example

A newly built, well located, distribution warehouse let to a sound tenant company would command an investment value of approximately fourteen times its rental value. Taking the example of property whose rental value is £5.00 per sq ft (£54.00 per sq m), its value to an investor, such as a pension fund, would be up to £70 per sq ft.
   
  Assuming good site conditions attributable land values of £15 per sq ft apply and Construction costs of £30.00 per sq ft, leaves a healthy margin left for interest on capital, professional fees, sundries and a substantial development profit.

Many longstanding clients continue to employ CRCL because they have access to the financial benefits normally only available to developers:
   
 
   
  By appointing CRCL to arrange a development, the occupying tenant company not only has total control of the project through to completion, avoiding the confrontational tone common to developers, but also benefits from the accrual of development profit. The only item to be offset against this gain is CRCL's fee which equates to a fraction of the total added value.

There are other financial issues which will be of interest to trading companies, such as the impact on investment value brought about by tax allowances on industrial buildings, plant and equipment. These allowances are particularly effective in Enterprise Zones. Indeed, one of CRCL's E.Z. development's is 250,000 sq ft of factory space in the enterprise zone at Chesterfield, Derbyshire for an 'American' client.
   
  Commercial Relocation Consultants Ltd
10 Penn Road, Beaconsfield, Buckinghamshire, HP9 2LH
Tel : +44 (0)1494 678828
Fax : +44 (0)1494 671160
Email : propertyconsultants@crcl.co.uk
 
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