Rating Manual section 6 part 3: valuation of all property classes

Section 175: builders merchants

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

1. Scope

1.1 Builders’ Merchants (“BMs”) are a large, distinct category of property which were data captured separately from general industrial properties for the first time for the 2010 Revaluation.

1.2 It has been recognised that many BMs should be ring-fenced from general industrials, principally because the rental evidence suggests there is a premium attached to such properties.

1.3 Whilst traditionally used almost exclusively by the building trade, in recent years they have been used increasingly by the general public as well, attracted by the lower prices than at DIY Retail Warehouses, albeit in more robust trade-based surroundings.

1.4 BMs usually sell a wide range of products (e.g. bricks, aggregates, joinery, PVC, hardware, landscaping products, etc.) rather than specialising in one area (e.g. timber merchants/wood yards).

1.5 For clarity, timber merchants and wood yards are not strictly part of this exercise as most will be primarily land bulk class with ancillary buildings or alternatively W Bulk Class with inferior quality open woodcutting/storage buildings with any land element recorded as Other Additions. That said, properties classified as BMs can include some that are occupied by timber merchants.

2. List description and special category code

List description: Builders Merchants and Premises

SCAT code: 994, Scat suffix G

3. Responsible teams

3.1 The valuation and referencing of this class of property is the responsibility of the NDR Unit.

3.2 The class co-ordination team will be available to give advice.

4. Co-ordination

The Class Co-ordination Team and the Industrial Valuation Panel have responsibility for this class ensuring effective co-ordination across the business units. The team are responsible for the approach to and accuracy and consistency of BMs. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating list. Caseworkers have a responsibility to:

  • follow the advice given at all times

  • not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team

Planning

Planning authorities take differing views on whether the category falls within Use Class B8 or should be treated as sui generis. This appears to depend on the proportion of retail use and the likelihood of regular access to the hereditament by members of the public- the more regular the public access, the more likely it is to be treated as sui generis.

6. Survey requirements

The basis of measurement for this class is Gross Internal Area. Reference should be made to the Code of Measuring Practice for Rating Purposes in England and Wales.

7.Survey capture

7.1 All Units should follow the following guidance on National Sub-locations, Referencing and Data Capture, with regard to BMs in their area.

7.2 Once identified, the following national sub-locations should be adopted for all Builders’ Merchants which have a premium above the value of general industrial properties, in order to improve co-ordination:

BLD1 Builders’ Merchants in key main road locations with good access and prominence- there is likely to be a significant retail element, part to a showroom standard. Likely to be in an urban location and may be out of the most congested town and city centres, to enable easy access for large vehicles. The area of land is likely to be in excess of the area of the enclosed buildings and, for some, may be close to the ideal 70%/30% land/buildings split. Some of the land may have access to the general public consequently enhancing its value.

BLD2-Builders’ Merchants in less prominent positions than BLD1s in the following locations:

  • on main roads
  • in easily accessible positions close to main roads
  • on good industrial estates where its position and/or the size of the land area, separately or together, suggest that a premium should be applied to the property above that of nearby industrial properties- the premium on the land may be because the supply of large land plots in that locality is limited. Those on industrial estates may have enhanced values because of the prominence of the buildings and/or land, afforded by their specific plot, perhaps on the edge of the estate. Proximity to trade warehouses may also enhance the value of such properties.
  • in semi-rural locations/villages where the position of the property provides a focal point because of its central position or its prominence in relation to the local road network.

The area of land is likely to be in excess of the area of the enclosed buildings. Some of the land may have access to the general public consequently enhancing its value. The location and/or the amount of land means that the land element may warrant a premium above the local level of ancillary industrial land. There is likely to be a retail element, though it’s probable that this will be smaller than for BLD1 and be of lower quality.

7.3 All BMs that don’t have a premium should be placed within category BLD3.

BLD3 Builders’ Merchants in the following locations:

  • on ‘back streets’ and/or forming part of older industrial buildings- the tight sites and limited access may create access problems for large vehicles and there is unlikely to be a premium above local industrial levels on land or buildings. As these hereditaments are not likely to be situated on a busy main road, these properties may have a small trade counter element, but this will usually have little or no additional fitting out and the land/building ratio will be close to 50%/50%, such that no premium above prevailing industrial levels is warranted.

  • on industrial estates, where the characteristics of the property are the same as, or similar to, other industrial properties in the locality, suggesting that the valuation should follow the prevailing industrial approach/values & are unlikely to be in close proximity to trade warehouses or retail uses. Such properties may be located in less prominent positions on estates, may not be readily discernible from surrounding properties and/or may be in a locality where large amounts of land are readily available.

  • rural locations away from significant road or motorway junctions and away from built-up areas.

Previous advice was to sub-locate these as BLD3 and data capture in line with other BMs. It is not essential that these are amended to follow the alternative option which follows, but Units may choose to do so. The alternative approach is to populate the 2017 Reval case survey data remarks with “This is a BLD3 builders’ merchant” and retaining the appropriate local sub-location code to direct it to the appropriate matrix. Subsequent maintenance & appeals work during the life of the list, including new properties falling into this category should also have the same remarks retained on the live survey data.

Such builders’ merchants are unlikely to feature any of the characteristics of either BLD1 or BLD2 properties as described above. These properties demand no premium above local industrial levels, but the two alternative approaches to the treatment of BLD3s will ensure that it is clear that consideration has been given as to which category the hereditament falls into and will help in recording that all BMs have been identified. Because of changes in localities due to infrastructure changes, surrounding demolitions and improvements to these properties over time, it is possible that a BM in this category can become more prominent and develop the characteristics of BLD2, or in extreme cases, BLD1.

7.4 In order to fit the sub-location descriptions onto RSA within the requisite 256 characters, the following abbreviated standard descriptions should be copied into RSA:

BLD1 Builders’ Merchants in Key Main Road Urban Locations - good access & prominence in uncongested areas, probably with a good showroom. Gross land area in excess of the area of the enclosed buildings, some of the land having access to the general public.

BLD2 Builders’ Merchants on good industrial estates, in non-prominent main road or easily accessible non-main road positions, with retail element. Gross area of land having a premium above local industrial land values & allowing access to the general public.

BLD3 Builders’ Merchants in back street locations & part of older industrial buildings, often with poor access for large vehicles. No premium above local industrial levels on land or buildings. Often with a small basic trade counter element.

7.5 Builders’ Merchants should be valued using an address matrix and the R2017 analysis and valuation scales AVFGIAV1 & VVFGIAV1 in the analysis and valuation access paths respectively.

7.6 The CCT suggests that in view of the use of an address matrix, where buildings are of different ages, each building where the age is value-significant should be captured as a separate survey unit, with an appropriate AGE+ or - code adopted as a Survey Unit Adjustment. It may on occasions be a better solution to add a different sublocation on 2nd (& subsequent) survey units to send that element to a different matrix. This approach may suit in some situations, when it is desirable for that survey unit to access an alternative local scheme, such as one for trade warehouses or for showrooms (the latter would also require a different bulk class of S on that 2nd (or subsequent) survey unit.

7.7 There is no specific SCAT Code for Builders’ Merchants and there will not be one for the foreseeable future. The most appropriate SCAT Code is 994. The Primary Description Code used should be IX with the description ‘Builders’ Merchants and Premises’. There should be as much standardisation of the data capture and valuation approach as possible in order to have consistency across the network.

7.8 Surveys should be measured to GIA.

7.9 Builders’ Merchants should be captured within W Bulk Class with land as Other Additions. This approach aids the analysis of rental evidence. Prior to analysis Units will have to choose a price at which to place land within the Other Additions Analysis Tables. Refer to the relevant List practice note for the minimum levels of land value to be adopted within Other Addition Tables for analysis and valuation access paths.

7.10 No circulation or access space should be deducted from the land area at Builders’ Merchants hereditaments. This ties in with VSA standards which advocates that the method of survey should be as per (C) in the attached document, with land captured as an Other Addition using the following basis- gross site area less the building footprint (and any unusable land, steep banking, etc).

However, in order that the method of survey used for land areas at BMs remains consistent with the local approach used for land ancillary to general industrials, the survey method should follow that used locally for the land ancillary to general industrials. In cases, where the local approach to ancillary industrial land is to reflect its value in the value of the buildings, please consult with a member of the CCT. It is considered good practice to record any area of land deducted in addition to the footprint of the buildings as:ZO9 Other Addition code, overwritten as “Land Reflected in Valuation”.

7.11 Units must not use QAL+ (or similar) line adjustments to retail elements of Builders’ Merchants. SOV should be used for the more basic retail areas to be valued at a relativity of 1.2 on Survey Unit 1. Where the retail part is of superior quality, that part should be placed in a separate survey unit within bulk class S, using Line Use Code SRM and have an appropriate local retail overall sub-location code to drive its value to the appropriate local shop matrix. Units may feel it is appropriate to have a specific sub-location to identify such shops as Builders’ Merchants showrooms if they wish to distinguish these separately from other overall shops. However, as numbers are likely to be few and far between within each Unit and values will tend to be related to local retail overall levels, there is no specific recommendation as to sub-location or value in this regard. Clean rental evidence for such showrooms is rarely available at Builders’ Merchants, as the tenant is usually responsible for the fitting out.

7.12 Units are encouraged to review Other Addition Codes to ensure that BM surveys are correct. It is highly unlikely that any of the following codes are appropriate anywhere within a Builders’ Merchant hereditaments: LOH, LOG and LOU. Security is paramount at such properties and in view of the equipment and materials stored on the land, there is unlikely to be any unfenced storage land and lighting and security systems may well be present, but not yet data captured.

7.13- At many Builders’ Merchants’ hereditaments, land may be divided between sales and non-sales land. However, even after inspection, the section that is open to the public may be difficult to ascertain or indeed may change on a regular basis. In addition, there are no Other Addition Codes available to distinguish between the two. It is not critical to the valuation to distinguish between the two- it will be more realistic to think that the same price is adopted for each type of surface in analysis and valuation, irrespective of whether the land is accessed by the public, in light of the fluidity of the land use.

7.14 Car parking spaces should be included within the adopted land area.

8. Valuation approach

Rental and rental comparison approaches should be used.

Rental evidence for this type of hereditament exists. The class co-ordination team is available to assist with rental analysis.

9. Valuation support

  • Rating Support Application (RSA)

  • Survaid

  • Class Coordination team: your CCT representative can be found at this link.

  • National Specialist Unit

Practice note 2017: builders merchants and trade warehouses

1. Market appraisal

There are common themes that have been observed in Market Knowledge Reports across England and Wales. Whilst there have been some falls in rents up to 2013, the signs are that the BM market has picked up in anticipation of increased house-building and coming out of a recession. There are plenty of rents nationally to support this feeling, although none of these have any particular geographical concentration.

A consistent conclusion has been that rents support an uplift on the buildings as well as a premium on the land. Further thoughts indicate that the more modern buildings at the best BMs, including those in trade or retail warehouse locations, should follow the local trade warehouse basis, not the values on general industrial matrices, as the premium on the land alone still undervalues the better BMs.

According to a report in the Builders Merchants Journal 13th May 2014 “Construction activity has grown in four consecutive quarters for the first time in six years, according to the Construction Products Association’s latest trade survey”.

Also a report in Builders Merchants News 14th April 2014 – “The Construction Products Association’s (CPA) latest forecasts predict activity in the construction sector will grow 18% by 2017.” This is further endorsed in an article at http://www.jewson.co.uk/about-us/industry-news/construction-output-soon-to-peak/ on 2nd February 2015.

A news article in The Times on 20/3/15 reported that Travis Perkins planned to open 400 stores “over the next 4 years”, investing “between £150m and £200m” and seeing “the creation of 4,000 jobs”.

A useful summary of the state of the market in 2014 and forecasts of future growth is provided at Builders’ Merchants Market Report- March 2014 (source www.amaresearch.co.uk).

2. Changes from last practice note

A summary of the changes from the 2010 BM Practice Note is as follows:

  • CCT guidance on the value of buildings at BMs is now that the more modern buildings should follow trade warehouse and, on occasions, retail warehouses values for 2017, rather than general industrial values. For all properties within sublocation BLD1, Units should look at local trade warehouse values in order to decide on the price that should be adopted on the main buildings within the hereditament, as well as local showroom values for good quality separate showroom buildings. In addition, post-1995 built buildings at BMs sublocated within category BLD2 should also now follow the local trade warehouse values when they are situated in localities with such competing uses.

  • Additional detail within the description of BLD2 sublocation to guide caseworkers with regard to BMs which have a premium yet which are situated on industrial estates.

  • With regard to sublocation BLD3, there is now additional flexibility as to how these should be data captured. This enables Units to adopt local industrial prices more easily for this category of BM.

  • Previous advice was to sub-locate these as BLD3 and data capture in line with other BMs. It is not essential that these are amended to follow the alternative option which follows, but Units may choose to do so. The alternative approach is to populate the 2017 Reval case survey data remarks with “This is a BLD3 builders’ merchant” and retaining the appropriate local sub-location code to direct it to the appropriate matrix. Subsequent maintenance & appeals work during the life of the list, including new properties falling into this category should also have the same remarks retained on the live survey data.

  • Relaxation of the instructions at 5.5 (of the 2010 PN) with regards to how to data capture second survey units to allow for alternative local scheme matrices to be more easily accessed.

  • Whilst the guidance on land values remains unchanged, there is now a ceiling price of £25/m2 placed on the land at BMs when the local price is uplifted by 50%. If the uplift gives a price above that level, caseworkers should seek CCT guidance.

3. Ratepayer discussions

Whilst it is anticipated that discussions will be held with ratepayers, their representatives and/or trade bodies, these have not yet taken place. However, there does appear to be some desire by ratepayers’ representatives, as well as by the VOA, in having central discussions prior to the compilation of the list.

Central discussions took place on the 2010 List which resulted in amendments to the original 2010 PN and which have been taken into consideration for 2017

4. Valuation scheme

4.1 Caseworkers should be encouraged to trawl through the main operators’ websites to find new sites opening and then target these with FORs as the rental information obtained will be very relevant for R2010.

4.2 For R2017, BMs will continue to have their own Valuation Schemes. It is recognised that not all Units identified all their BMs for the 2010 Rating Lists and so some will be valued under this Scheme for the first time on the 2017 List.

4.3 The co-ordination of Builders’ Merchants Valuation schemes by the CCT will concentrate on those sub-located as BLD1 and BLD2, thus making these the priority for identification.

4.4 Where the 2017 changes in this PN render the need for changes to survey data for 2017, during Dual List Maintenance the changes should be made to the Reval Case only with the DLM Flag set to ‘Y’ to protect the changes.

4.5 No previous national guidance has been given with regard to Trade Warehouses although some NDR Units may have valued them separately from general industrials. They have been included within this Practice Note for 2017, as they are a class of property that is closely associated with Builders’ Merchants.

4.6 In analysis and valuation access paths, the following values should be adopted in Other Additions Matrices, subject to a minimum of not less than 50% uplift on the local industrial ancillary land value:

BLD1- Use OA code LFH- Land Price to be not less than £7/m2 (even when maximum quantum applied)

BLD2- Use OA code LFH- Land Price to be not less than £5/m2 (even when maximum quantum applied)

BLD3- Use OA code LFH- Local Land Prices to apply e.g. use appropriate local office OA Matrix.

When the 50% uplift applied to the local ancillary industrial land prices gives a price per m2 for BMs in excess of £25/m2, caseworkers should seek CCT guidance.

4.7 It should be noted that in addition to the premium that the rental market places on ancillary land at BMs sublocated as BLD1 and BLD2, it is highly likely that many operators will have improved the surface of the land at many BMs to cope with the additional weight burden placed on the land from heavyweight building materials. The cost of the surfacing is therefore likely to be in excess of typical surfacing of land; whilst the minimum uplift of 50% to the local ancillary land may reflect this superior surfacing, it is important to bear in mind that the surfacing may not be reflected in the rent itself.

4.8 All land codes (LFH, LFG, LFU, LOH, LOG & LOU) should be set in Builders’ Merchant OA Analysis Matrices at the same value. This mirrors the Land Used for Storage analysis scale relativities. With regards to OA Valuation Matrices, the CCT makes a specific recommendation only on code LFH where the appropriate minimum value as noted above should be adopted in the OA Matrix within the access paths for the different sub-locations. The CCT recognises that the relativity between the other land Use Codes and LFH varies geographically and so makes no specific recommendation.

4.9 More modern building values at BMs should follow trade warehouse and, on occasions, retail warehouses values for 2017, rather than general industrial values. For all properties within sublocation BLD1, Units should look at local trade warehouse values in order to decide on the price that should be adopted on the main buildings within the hereditament, as well as local showroom values for good quality separate showroom buildings. In addition, post-1995 built buildings at BMs sublocated within category BLD2 should also now follow the local trade warehouse values when they are situated in localities with competing trade or retail uses. Within category BLD2, it may sometimes be appropriate to adopt the local industrial basis, but this should only be considered when the competing uses in that locality are primarily industrial in nature.

4.10 In the likelihood that many retail areas within Builders’ Merchants hereditaments are tenant’s improvements, Units should consider amending retail line use codes to factors of 1.00 during manual analysis where they are confident that this is the case. This should lead to more accurate analyses of rents.

4.11 Units should set up a Matrix for each sub-location i.e. each of the National Sub-locations should go to a separate address matrix in order to keep the Matrix Component Descriptions for the Schemes as precise as possible.

Trade Warehouses

4.12 The value of trade warehouses lies somewhere between the top end of industrial values and the bottom end of retail warehouses, depending on age, location and quality.

4.13 Whilst some Units may already have their own valuation schemes for trade warehouses, remaining Units should consider adopting such schemes for 2017. Some existing general industrial schemes may already reflect rental evidence by placing a high industrial level of value on such properties, but others may undervalue them by placing too little weight on such evidence in the basket of rents for large schemes.

4.14 The CCT has identified that there are three categories of such properties, the first and third of which are relatively easy to data capture, the second being the most difficult ones to deal with, as there is a greater variety within that category:

*Those at distinct trade parks, usually built after approximately 1995 and which, once identified, appear to be easier to make sense of as they are usually marketed and let as such and attract similar trade-based occupiers who generally have a presence in urban areas from small towns upwards-adopt national sublocation TRD1

*Those that locate on main roads in quasi-retail positions, traditionally with a beefed-up trade counter or showroom at the front with extensive storage to the rear unlike the more compact and generally (but not always) more modern trade park properties in TRD1 above. Again these are occupied primarily by trade-based occupiers- adopt national sublocation TRD2.

*Those on traditional industrial estates with basic trade counters. As these are unlikely in the main to have a premium, the vast majority will remain as general industrials.

*The bulk class indicator for those properties to be captured as TRD1 and TRD2 should be W.

4.15 Units that choose to adopt the two national trade warehouse sublocations should consider the use of Analysis Scale AVWTRADE1 and the Valuation Scale VVWTRADE1 within access paths for these properties. These scales require supported floors to be captured as Other Additions and therefore any Line Use Codes of AUS should be amended to the appropriate code and any line entries for supported floors should be moved to Other Additions. Within Other Addition tables in Analysis Access Paths, the supported floor should be set at 0.00. No recommendation is made as to the price to be adopted for supported floors in Other Addition tables within Valuation Access Paths, although Units may want to look at the prices adopted on similar uses for OA tables within retail warehouse access paths.

4.16 Where 2017 survey data is amended to a trade warehouse basis for 2017, the survey data should be protected with a ‘Y’ flag, so that Dual List Maintenance doesn’t overwrite the 2017 survey data with any subsequent 2010 survey data changes.