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This paper examines the way valuers working for Central Government apply the RICS Appraisal and Valuation Manual (the Red Book), its definition of depreciated replacement cost valuation and its effects on Government policy on public sector listed buildings, capital charging and Inner City Regeneration. This paper suggests that the Red Book provision for the valuation of specialised public sector buildings for which there is no market using depreciated replacement cost (DRC) method assuming actual replacement may discourage the use and reuse of those buildings. This could conflict with Government policy to preserve and enhance Britain’s heritage of listed public buildings. Also the strict application of Red Book valuation standards may produce unhelpful valuations which impede the capital charging system.

This paper seeks to describe the development and testing of a depreciated replacement cost model for a portfolio of corporate real estate assets.

A model was developed in Microsoft Excel, using depreciation rates and adjustment factors derived from readily‐available tables applied to elemental building costs. The model was applied to an actual property portfolio, with the costs of data‐gathering being estimated.

The developed model proved to be effective in both planning and managing maintenance and capital expenditure, with application to life‐cycle maintenance and replacement decisions. The model was successfully used to conduct a replacement cost valuation on the test portfolio. It was found that the cost of the initial detailed data‐gathering could be repaid in a relatively short time by use of the model.

The methodology appears to be widely applicable to corporate real estate portfolios, with depreciation rates and methods, and levels of detail of components used being able to be changed to suit individual country and portfolio circumstances.

Provides a model useful for harnessing basic property information into a sophisticated day‐to‐day and strategic portfolio management tool.

In January 2005, the International Valuation Standards Committee (IVSC) published the International Valuation Guidance Note No. 8 entitled The Cost Approach for Financial Reporting – (DRC). This guidance note provides background to the use of depreciated replacement cost (DRC) in connection with International Valuation Application 1 (IVA 1), Valuation for Financial Reporting and suggests that the valuer reports the result of a DRC valuation as market value subject to the test of adequate profitability or service potential. This suggestion has caused a lot of debate and consternation in the UK where the DRC approach has always been considered as a method of last resort and not a market valuation. However, in continental Europe the cost approach (DRC) is often the principal method of valuation and has always been considered to produce market value. The purpose of this paper is to discuss the impact of this change to valuation practice in the UK.

In this paper, we discuss the concept of market value and its relationship to DRC in an attempt to identify the principal areas of concern in the UK and, through the use of an Italian case study, show how the DRC approach can be adopted as an appropriate method (not basis) for calculating Market Value.

It is probable that most valuers will still provide the DRC valuation using exactly the same calculation as they did before. They are likely to provide the same (relative to the valuation date) figure; the difference is that they will feel less easy about the robustness of that figure

It is argued that the UK market has, for too long, hidden behind DRC being a basis of value that UK valuers now feel uncomfortable in reporting DRC as market value. They are uncertain with the valuation figure. However, this uncertainty can be addressed in other ways and a suggested “solution” to help the valuer overcome their discomfort with the market valuation is proffered.

When valuing “no market” properties using the cost approach, one of the fundamental problems is the reflection of “age‐related” depreciation in the appraisal process. The uncritical use of straight‐line depreciation produces illogical results and a new methodology “discounted assets rent” (DAR) is introduced to overcome these difficulties: site values based on existing use should not be depreciated per se in the process. A new software program (DAR) has incorporated these facilities as a “user‐friendly” valuation tool.

Compiled by K.G.B. Bakewell covering the following journals published by MCB University Press: Facilities Volumes 8‐18; Journal of Property Investment & Finance Volumes 8‐18; Property Management Volumes 8‐18; Structural Survey Volumes 8‐18.

Index by subjects, compiled by K.G.B. Bakewell covering the following journals: Facilities Volumes 8‐18; Journal of Property Investment & Finance Volumes 8‐18; Property Management Volumes 8‐18; Structural Survey Volumes 8‐18.

Compiled by K.G.B. Bakewell covering the following journals published by MCB University Press: Facilities Volumes 8‐18; Journal of Property Investment & Finance Volumes 8‐18; Property Management Volumes 8‐18; Structural Survey Volumes 8‐18.

Compiled by K.G.B. Bakewell covering the following journals published by MCB University Press: Facilities Volumes 8‐18; Journal of Property Investment & Finance Volumes 8‐18; Property Management Volumes 8‐18; Structural Survey Volumes 8‐18.

Several problems arise from the current valuation standards and guidance in relation to the replacement cost method and they can be classified as definitional and methodological. Definitional problems include confusion over the precise meaning of the terms cost, price and value and clarification of the economic concepts of substitution and “highest and best use” in the cases of market‐based and replacement cost methods. Methodological problems include the difficulty in finding market‐derived inputs, particularly when estimating depreciation, and the need to make end adjustments. These matters raise the question as to whether a replacement cost method is compatible with a market basis of value. This paper aims to address this issue.

The paper reviews academic literature and professional practice guidance in relation to the replacement cost method of valuation and the market value basis of valuation.

Defining replacement cost as a method of estimating market value rather than a separate basis of value blurs the distinction between cost and value. This paper argues that market value assumptions do not hold in the case of the replacement cost method.

The paper seeks to stimulate debate on the current professional guidance for the use of the replacement cost method of valuation.

Local authorities are now constrained to produce asset valuations for accounting and management purposes. Specialized property, for which there is little or no market, has to be valued under the RICS Red Book using the depreciated replacement (DRC) basis. Reviews the consequent requirements of local authorities and the valuation techniques available for producing capital and rental figures, including the latest “S curve rental” method.