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All-Risk Yield (ARY)
This is sometimes known as the property yield. It is a very simple benchmark used to indicate the attractiveness of a Particular freehold property. If an investor considers a property has good growth prospects, they will pay more for the property to reflect this potential. As the ARY is the initial rent divided by purchase price, then the better the property, the lower the ARY
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Capitalisation Rate
The ARY is the capitalisation rates for a fully let property. It is the rate of return used in a traditional valuation to derive the YP (years purchase) that is then used to multiply the rental into a capital value figure
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Capital Return
The increase or decrease in value over a given period, after allowing for capital expenditure, expressed as a percentage of the capital employed over the period
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Cash Flow
The actual or estimated, periodic net income produced by the revenues and expenditures in the operation and ultimate resale of an income-producing property
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Depreciation
Decrease in value of real property caused by obsolescence, deterioration in its condition or other factors
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Discounted Cash Flow (DCF)
Technique used in investment and development appraisal whereby future inflows and outflows of cash associated with a particular project are expressed in present-day terms by discounting with a specific discount rate.
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Discount Rate
The rate or rates of interest selected when calculating the present value of some future costs or benefits
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E.B.I.T.D.A.
Earnings Before Interest, Taxes, Depreciation and Amortization
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Exit Value
The capital value of the investment property at the end of the period of analysis
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Equated Yield
The overall yield either achieved or required from a property investment based on explicit growth in the rental cash flow.
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Façade
The outside front wall of a building
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Feasibility Study
A comprehensive study for the determination of the likelihood that a proposed development will fulfill the objectives of a particular investor
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Gross Present Value (GPV)
The discounted or present value of a series of future cash flows where the initial outlay is NOT included as an outflow
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Income Return
The net income receivable in a given period expressed as a percentage of the capital employed over the same period
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The Initial Yield
The initial yield is the ratio of the initial rent over the capital value (price). It is the
Yield that the investor achieves initially, and each year until the rent changes
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Internal Rate of Return (IRR)
The rate of interest (expressed as a percentage) at which all future cash flows (positive and negative) must be discounted in order that the net present value of those cash flows should be equal to zero. The IRR reflects both the return on the investment capital and the return of the original investment, which are basic considerations of potential investors
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Market Value
The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after property market wherein the parties had each acted knowledgably, prudently and without compulsion
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Net Present Value (NPV)
The discounted or present value of a series of future cash flows where the initial outlay is included as an outflow. The NPV is therefore the surplus or deficit present valued monetary sum above or below the initial outlay (purchase price)
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Nominal Return
The return on an investment calculated by reference to cash flows expressed in monetary or actual terms. (See also real return)
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Obsolescence
This is the causes of depreciation. It may be a decline in utility (economic obsolescence), physical usage (physical obsolescence) or due to changes in user preference over time (functional obsolescence)
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Opportunity Cost
The return or other benefit foregone in pursuing one particular investment opportunity rather than another.
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Rack - Rented Freehold
A property let at Market Rental (MR) on either a new lease or at rent review. MR is the best rent readily achievable in the market today
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Rateable Value
The nominal value of the commercial property on which rates are assessed. In theory this value is the rent that a tenant might reasonably be expected to pay.
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Real Return
The investment return remaining after the effects of inflation have been stripped out
of the performance calculation being used
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Rental Growth
The rate of change, increase or decrease, applied to current market rental values to derive a forecast level of rental value at a date in the future
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Required rate of return
The Target rate of return
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Risk Free Rate of Return
The interest rate on the safest investments. Often quoted with reference to a fixed interest gilt, this is the guaranteed nominal annual return (redemption yield) that can be obtained by holding such an asset to its redemption date
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Risk Premium
This is the addition made to the risk free rate of return to reflect the extra return required by an investor over and above the risk free rate, which fully compensates for the extra risks associated with a given investment
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Target Rate of Return
A criterion rate selected in a particular instance to reflect the opportunity cost of money. This is often based on the redemption yield of government stock with a percentage addition or a discount to reflect the nature and risks of the project, but it may be comparative with other potential property investments
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Total Rectum
The sum of capital return and income return as defined above
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Vacancy Rate
The percentage of all units or space that is unoccupied or not rented
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Years Purchase (YP)
The YP is the multiplier used to capitalise a rental figure into a capital value