A commercial property valuer is using the capitalisation approach and must determine an appropriate capitalisation rate. Which combination of factors would typically result in a LOWER capitalisation rate?
Correct Answer
B) Blue-chip tenant, long lease term, stable market conditions
Lower capitalisation rates reflect lower risk investments, which command higher prices (values). A blue-chip tenant with a long lease in stable market conditions presents minimal risk, justifying a lower cap rate and higher property value.
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Previous Question
A commercial property has passing rent of $180,000 per annum with annual reviews, but market rent is assessed at $220,000 per annum. The lease has 8 years remaining with a quality tenant. How should this rental situation affect the capitalisation approach valuation?
Next Question
A heritage-listed commercial building requires valuation for insurance purposes. The building generates $80,000 annual net rent, but recent comparable sales suggest a market value of $1.2 million while the summation approach indicates $1.6 million due to high replacement costs. Which approach should be given primary weight?