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Valuing retail strata shops requires careful consideration of a few key issues that can significantly influence the property’s value. In this blog post, we will discuss some of these issues.
As with any property, the size and layout of the retail strata shop are crucial to its valuation. However, strata shops may have different layouts compared to non-strata shops as they require access through common areas to shared amenities and storerooms. A strata shop with non-exclusive use of shared amenities is less valuable than one with exclusive use, even if they are located outside of the shop’s premises. This applies to loading docks and the use of garbage and compactor rooms as well.
One of the first issues to address is car parking and storage areas. In most cases, these areas are included in the strata area and do not require a separate license. However, if these areas are not part of the strata area and are licensed separately, they will need to be valued separately as well.
Another important issue to consider is the number of shops in the building. If there are less than five shops in the building and the prescribed use does not fall under the Retail Leases Act, these shops may not be considered as retail use and may not receive the protections of the Retail Leases Act. This can greatly impact the property’s value, as the protections provided by the Retail Leases Act can greatly benefit the tenant.
The strata area shown may also be different from the Gross Lettable Area Retail, which will again impact the value of the shop. For example, areas under 1.5 meters in height are excluded from GLAR. This will also impact the comparability of other non-strata shops, which are measured by GLAR.
Recoverable outgoings in shops are typically lower than in non-strata shops, all other things being equal. Therefore, when comparing gross rents, this needs to be factored into the valuation considerations. Furthermore, the recovery of sinking funds in strata schemes is regulated under the Retail Leases Act of NSW.
Strata shop by-laws can also impact the value as they may restrict the usage of certain areas such as loading docks, use of goods lifts, rubbish rooms, etc. Furthermore, there may be undocumented restrictions on the use of the retail shop due to the provision of shared services. For example, extractor fan ventilation may disturb above-level residents, and the strata manager and Council could impose restrictions on the night time trade of a ground-floor food tenancy.
In summary, additional consideration of strata retail shops is crucial to get their valuations right. This includes factors such as the measurement of areas, outgoings, strata scheme by-laws, and other restrictions on usage.
Specialised rental valuations of retail, childcare, medical and aged care are complex and multi-faceted. IPS Consultants is an independent consultancy with more than 25 years of experience in this field and regularly provides complex analysis in these areas.
