VALUING INCREASINGLY DIVERSE PROPERTY PORTFOLIOS REQUIRES RELEVANT KNOWLEDGE AND EXPERIENCE

Portfolio valuations are an important part of managing any commercial property investment, but with investors turning to increasingly diverse types of property, obtaining appropriate advice is key to maximising returns on the portfolio, writes Kevin Atkins.

Valuations can be carried out for a variety of reasons.  Often they are done on behalf of a lender, either as part of a financing review or because the investor is seeking to use their existing portfolio as security to raise more finance to expand it or to maximise their portfolio’s potential. 

They should also be a regular (every three years or so) part of managing a property-based pension fund; or an investor may just want to benchmark their portfolio against the market, perhaps because they are looking to rationalise their portfolio to reduce risks in a particular sector.

Property values fluctuate all the time, and when a portfolio is across a number of different property types; capturing these movements requires specialist knowledge and experience of the market.

There is definitely a trend towards diversification in property investment in recent years.  Partly this has been driven by buy-to-let residential investors wanting to spread their risks against a background of increasing regulation and less benign tax treatment on their residential portfolio.

But there are positive reasons as well: investors are increasingly drawn to commercial, and especially industrial, property, because of the attractive returns over the past five years.  Meanwhile, sectors such as holiday lets have also come into play following the ‘staycation’ trend exacerbated by the Covid-19 pandemic and cost of living crisis.  

This poses an issue when it comes to valuing the whole portfolio.  Single-sector investments require a valuer with in-depth knowledge of that market; multi-sector portfolios need a much broader expertise and experience to ensure accurate valuations are provided.

For example, residential valuers are generally excellent at valuing residential properties, however they may not have the knowledge or experience of factors influencing value in other commercial sectors, such as offices or agricultural property.  

Very recently I have carried out a portfolio valuation on behalf of an institutional lender, whose client is seeking to raise finance to unlock the development potential of their existing portfolio.  This included two commercial assets, two barns which had been converted into holiday lets, and five unconverted agricultural barns which the investor wants to develop. 

Clearly doing this requires knowledge of multiple sectors; I was fortunate to be able to draw on Arnolds Keys’ specialist teams in all the relevant areas as a multidisciplinary practice.

With a changing economic backdrop, it is increasingly vital to obtain a portfolio valuation from a firm which can offer expertise in every sector of property to identify risks and opportunities for the investor.