Valuing the refurbishment cycle

Abstract

This paper presents a simple method to assess the value of a commercial property, considering the cost and timing of refurbishment. It is constructed on the understanding that net rental income tends to decrease as the property ages, while maintenance cost increases with time. As a result, there is a desirable duration of successive leases, at the end of which refurbishment can take place. A suitable choice of this duration could give a higher value to the property. By assessing the value of a property over one refurbishment cycle, values for similar successive cycles can be capitalised. This approach is equivalent to finding the annual equivalent of the discounted cash flow over one cycle, and then capitalising it as if it is a constant income to perpetuity.

Citation

Wong, K.C. (2000), "Valuing the refurbishment cycle", Property Management, Vol. 18 No. 1, pp. 16-24. https://doi.org/10.1108/02637470010311645