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

Section 380: factories, workshops and warehouses

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

1. Co-ordination

This category is subject to co-ordination in accordance with the relevant Practice Note.

2. Description

Hereditaments within this category cover a wide variety of property. From the small nursery unit to the largest distribution warehouse; from Victorian mills to the Class B1 “high-tech” building. This Section of the Rating Manual deals with some of the main principles to be applied should be read for general guidance. More detailed guidelines will be provided by Technical Advisors and the Local Office. Reference should also be made to other Sections in this volume for information on the more specialist industrial classes.

3. Survey requirements

3.1 Basis of measurement

Reference should be made to the Code of Measuring Practice for Rating Purposes in England and Wales. The basis of measurement of factory and workshop accommodation is Gross Internal Area (GIA).

Note that buildings in multiple occupation should be measured to Net Internal Area (NIA). As with offices, internal walls of brickwork or blockwork which divide up older cellular buildings should be treated as structural unless there is clear indication otherwise. But where within a multi occupied building there is a substantial area in single occupation which is comparable with other hereditaments measured to GIA, the most appropriate method should be adopted.

B1 “high-tech” hereditaments are likely to be compared with offices. Measurements should be based on NIA instead of, or in addition to, GIA.

The following items should, as appropriate, be noted:-

a. construction, condition and use of buildings with an indication of approximate age. Where refurbishment has taken place in recent years this should also be noted.

b. The height to eaves and ridge together with a note of clear heights.

c. Differences in floor levels and loading capacity. Limitations on the load carrying capacity of the floors (particularly supported first floors) should be noted as this may restrict the full use of the floor. Equally the presence of basements may have a similar effect. In some cases the floor will have been reinforced and will have a capacity over and above the norm.

d. Bay widths and stanchion grids. A note should be made of any item which restricts clear floor space.

e. Provision of natural and artificial lighting.

f. Services, including drainage, water, gas, electricity supplies, heating, lighting, cooling, security, ventilation and protection from fire.

g. Ease of access to and within the hereditament.

h. Loading and unloading facilities.

i. Proximity to the motorway network and/or major trunk roads.

3.2 Plant and machinery

Where rateable plant and machinery exists which requires separate valuation refer to Rating Manual section 6 part 5.

4. Basis of valuation

Ample rental evidence normally exists for this category of property and either the direct or comparative rental approach is therefore the appropriate method of valuation. This will be based on existing local evidence.

Rateable plant and machinery which is not reflected in the rents passing, or for which there is no separate rental evidence, should be valued on the contractor’s basis in accordance with the Valuation Office Cost Guide.

5. Valuation considerations

5.1 General

The valuation and maintenance of this class of property will be determined by local guidelines.

Valuers will need to take care when dealing with property close to a border with an adjoining office that the level of value adopted is properly co-ordinated.

Often the most reliable rental evidence is found from units which are not of the same category as the subject property. Generally smaller units yield the greatest amount of rental evidence. Often, larger premises tend to be owner/occupied but their value can be assessed by regard to rents paid for smaller units.

Attention is drawn to the case of Edmondson (VO) v Teesside Textiles Ltd (1984) RA 247 where the Court of Appeal found that the premises were to be valued vacant and to let and that the process machinery had to be ignored and treated as if it were not there.

5.2 Location

Historically, warehouses were located near to docks, ports and harbours. Now a prime position means easy access to the motorway system or at least to good quality dual carriageway. Changing retailing methods mean that distribution warehouses are part of the retail distribution chain and there is demand from a variety of potential tenant.

Industrial premises have tended historically to be situated in different surroundings to those of warehouses, requiring easy access to labour and raw materials. Later on, units were built on the edge of urban areas in estates and today this type of property may be found in many different localities.

5.3 Size

If the rental evidence is properly analysed and applied then no separate allowance for quantity should be made. Scales applying a reducing price/m2 for increased size should not be open ended (eg. 1% reduction for each 1000m2 increase in area). Depending on age and location it is probable that a minimum price/m2 will be reached where no further reduction is appropriate.

In the case of Austin Motor Co Ltd v Woodward (VO) (1968) RA 133, the Lands Tribunal reflected on the advantages flowing from the concentration of production in large units.

Recent changes in technology have led to strong demand for distribution warehouses where size is an advantage.

5.4 Obsolescence

Obsolescence is not necessarily age related. With some types of hereditament obsolescence can appear at an early stage. Obsolescence can occur when a building has been poorly designed or designed without any flexibility. Where a building has been designed for one particular purpose that has either finished or been modified the building may no longer be able to cope with the new demands placed upon it. Generally, the more specialised a building is the more prone to obsolescence it becomes.

5.5 Disabilities

Disabilities must be judged on their merits and by reference to the properties from which the evidence is derived and not from the ideal hereditament which rarely, if ever, exists.

Disabilities which relate to individual buildings or groups of buildings within a hereditament should be reflected in the unit price. Where a disability affects the hereditament as a whole it is appropriate to deal with this by means of an end allowance. Care should be taken to avoid double counting.

6. Town and country planning (use classes) Order 1987 and B1 use

This Order which came into force on 1 June 1987 lists 16 use classes but has been amended by the following Statutory Instruments :- SI 1991/1567; SI 1992/610; SI 1994/724; and SI 1995/297. Part 3 deals with industrial and most business uses. There were 8 classes - B1 Business; B2 general industrial; B3-B7 special industrial categories and B8 storage and distribution, but classes B3 to B7 were removed in 1995.

Retail warehouses come under use class A1 - shops. Class B1 is covered in more detail in paragraph 7 below but is a new business class bringing together light industrial and offices which do not provide a service for visiting members of the public. Light industrial use is defined as a use which can be carried out in a residential area without detracting from the amenity of that area. Thus noise, vibration, smell, fumes, smoke, soot, ash, dust or grit are likely to push such an activity out of B1 into B2. These are the tests. The processes carried on, or machinery involved, are no longer relevant.

Class B1 therefore encompasses a wide range of uses including offices, light industrial and assembly, research and development.

To emphasise the above point DoE Circular 13/87 expressly states that this business class covers high-tech uses, making the point that, for example, micro-engineering and pharmaceutical research, development and manufacture may be either in offices or light-industrial premises, whichever is more suitable.

7. High tech property

7.1 From the above it will be seen that this type of property comes within Class B1 of the 1987 Order.

7.2 Within the preceding 1972 Order it was difficult to cater for this class of property, particularly the inevitable overlap between uses such as office, research and development, laboratory and production.

7.3 In the early 1980s the professional press had difficulty in defining high-tech. In the Estates Gazette in 1984 the Glossary of Property Terms defined the class as “primarily a modern industrial building or easily adaptable older building which is particularly suited to the flexible uses and space needs of the modern technologies. Such needs usually embrace a requirement for more offices and laboratory space than in a traditional factory”.

7.4 The above definition reflects the premises originally used by high-tech firms. These were normally basic industrial sheds which were fitted out, often with a supported first floor, using the first floor as offices while retaining the ground floor for production.

7.5 The next stage was to provide better quality buildings for this new generation of occupier. The early buildings were invariably constructed of cladding on a steel frame with large glass areas incorporated and some featured atria as substantial entrance areas. Later units have tended to incorporate more brickwork particularly on the ground floor.

7.6 High-tech property provides a flexible building with generous car parking (1 space/20m2 to 30m2 floor area), out of town location and pleasant environment, and an image of high quality design and fittings. The Thames Valley area is popular because of the proximity to Heathrow Airport (one hours drive max). Occupying companies expect good access from home to work to retain high calibre staff and a high quality working environment. Internally there needs to be flexibility of use without structural alterations.

7.7 Paragraph 3.1 dealt with the basis of measurement. Some high-tech buildings are quoted on a Gross External Area (GEA) basis. Valuers should be careful that comparison is made on a proper basis.

7.8 Since the tenant is often left to fit out part of the hereditament care should be taken to ascertain all the facts when analysing rental information. It should be noted that fitting out costs can be as much as the cost of the building itself and that there will be a considerable amount of plant, some rateable and some not.

Practice note: 2017 - large distribution warehouses

1. Market appraisal

There have been no transactions on which to base an evidenced view of the market. Majority of sites are freehold and where rented can be subject to significant variations due to wider financial and business specific issues.

2. Changes from the last practice note

No practice note (PN) was produced for the 2010 revaluation.

3. Ratepayer discussions

There have been no discussions with ratepayers.

4. Valuation scheme

The rental comparison method should be adopted with each property to be individually valued having regard to local industrial / large industrial tones with appropriate adjustments to reflect inherent characteristics – FPA, CHL, CLD etc. Similar underlying issues to other industrials / large industrials such as age, modernity, layout etc.

All creameries must have a common sub location code linked to an address matrix.

The sub location code to use is 3CRM.

It is appreciated that this has certain implications -

Care must be taken to align values with those produced by size based matrices in use by Units, so as to avoid, as far as possible, illogical steps in value at the margins.

All valuations of creameries should be individually reviewed to ensure consistency and quality.

Car parking

Car parking should be “inclusive” and the reflected table should form part of all access paths.

It is accepted that in certain circumstances it may be appropriate to deduct for ‘lack of adequate parking provision’ and there may be some cases where an addition could be appropriate - but these will be exceptions.

Land (as an ancillary to an Industrial hereditament)

The VSA standards definition requires that all land within a hereditament is identified and appropriately captured.

This will ensure that –

No “notional” allowances or deductions are made from the gross area of land actually used for and identified as open storage

It should be captured as an “other addition” using the relevant OA code.

Valuation scale

VVFGIA1 should be used in all cases.

Eaves height

The effect on value of an eaves height greater or less than ‘normal’ is essentially a local Market Interpretation issue.

It is recommended however that the adjustments for height in all creameries should be checked in a reconciliation exercise to ensure that the intended result is achieved by the method of adjustment adopted and embedded in the survey data. The following matrix is intended to aid thinking and not to constitute a definitive guide.

Nature of Space Standard height Height greater than standard Height less than standard
Typical ‘modern’ Standard say 1980+ Range of about 4.0m to 6m Plus 10% pro-rata* in range 6 to 10m (2.5% per meter and 1% per metre thereafter Less 10% pro-rata* in range 3.5/4.0 to 2.5m – below 2.5m by individual adjustment
Typical older style (up to typical modern)   About 3.5 to 4m Consider nature of individual buildings but probably +10% at 10m. similar to above
  Old space/ Multi-storey No specific standard No addition No general reduction

*Where an adjustment is required, the adjustment code HRM+/- should be applied to line entries or survey units as appropriate

Specialised buildings:-

Some sites will have Spray Drier / Evaporator tower / buildings which are very tall buildings to accommodate the specialised plant items and or process. The following adjustments have been agreed to reflect the particular attributes:-

  • Headroom 16.5m – 19.5m – factor for 2.00

  • Headroom 20.0m – 24.5m – factor for 2.50

  • Headroom 25.0m – 30.0m – factor for 2.75 to 3.00

Fire prevention (sprinklers)

A value addition should continue to be applied by recording “A” or “M” as appropriate in Beacon characteristics A line entry or survey unit adjustment code FPT+ is also required. The factor applied is 1.05. Where tanks and pumps are present in support of the system, these must be valued as plant and machinery in accordance with the VO Cost Guide.

If cost evidence for a specific installation is put in evidence, this may be used as a better indication of value, once it has been adjusted and decapitalised at the statutory decapitalisation rate.

Heating

All Creameries should be assumed to be “unheated” and priced accordingly. It is likely that heating will be a tenant’s addition, unless scrutiny of the individual facts reveals otherwise.

Air conditioning

Where this is present in ancillary office areas, a line adjustment of AIR+ should be recorded in the valuation. This will value add 10% to the line value. If air handling systems serve production areas then they may be used in connection with a manufacturing operation or trade process and qualify for exception within class 2 of the Plant and Machinery Regulations. In cases of doubt refer to NSU Industrial and Crown Team. Plant and Machinery (P&M)

The common items likely to be found include high voltage electrical supply, standby power, supports and bases for machinery, walkways, bunds and tanks. These should be captured and valued in accordance with the Plant and Machinery sections of the Rating Manual, using the P&M section of the Non-bulk server and the ARC then transferred to RSA.

The Statutory Decapitalisation rate must be used.

Food processing, chilled and cold areas

Areas benefitting from ‘white wall’ food processing production fit out must be captured using accommodation use class coded as FPA (food). A factor of 1.15 should be used.

Areas used as Chill stores should be captured using accommodation use class code CHL (Chill). A factor of 1.15 should be used. Areas used as Cold stores should be captured using accommodation use class code CLD (Cold). A factor of 1.30 should be used. Cases of doubt should be referred to NSU Industrial and Crown team for advice.

Practice note: 2010

1. Co ordination

1.1 This is a Business Unit Class. Co-ordination responsibilities are set out in Rating Manual section 6 part 1.

1.2 The plans for all co-ordination activity are outlined in the Practice Note linked below: [Class Co-ordination Teams]

1.3 The Class Co ordination Team’s co ordination plans can be found in [Builders Merchants R2010 co ordination plans]

1.4 The appropriate Scat suffix letter should be G.

2. Introduction

2.1 Builders’ Merchants are a large, distinct category of property (at the last count in 1995 there were 4,525 but numbers are likely to have grown since then). This Practice Note is significant in that it alerts the Network to a category that has not been separately identified and valued as a distinct class.

2.2 However, it has been recognised that they should be ring-fenced from general industrials, principally because of the ‘retail’ use of significant sections of both the building and land elements. As a class of property, it does fit easily to capture within one of the traditional bulk classes on RSA because of the significant value in retail, industrial and land elements.

2.3 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, within more robust trade-based surroundings.

2.4 For R2010, Builders’ Merchants will have their own Valuation Schemes whereas currently within Business Units they are valued by reference to industrial Schemes. This may have led to underassessment in most locations, and this PN aims to correct that approach.

2.5 Builders’ Merchants usually have 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 )

2.6 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. Please note that properties classified as Builders’ Merchants can include some that are occupied by timber merchants.

3. Identification of builders merchants

3.1 Business Units need to identify all Builders’ Merchants within their areas in order to enable co-ordination of the class. The Class Co-Ordination Team (CCT) has created a list of [Builders’ Merchants - Useful Websites]. This is considered to be the best means of identifying Builders’ Merchants’ hereditaments. However, it is not an exhaustive list and the CCT will add to the list when new websites come to light and where new hereditaments are identified. Once identification has taken place, it is easier to cross reference with rental evidence and produce robust Valuation Schemes. As more Builders’ Merchants are identified, the supporting evidence will increase.

3.2 In order to be thorough Business Units should use local knowledge as much as possible to augment the list of websites.

4. Overview of the market 2003 – 2008

4.1 In the absence of any specific valuation basis for Builders’ Merchants, it is difficult to quantify the level of growth in rents between 2003 and 2008. The leading Builders’ Merchants have increasingly sought to locate in certain key prominent locations within urban areas, easily accessible for large vehicles. The levels of value in the better locations are above industrial rents and a premium is attracted to the land element because of the retail use of the land. 4.2 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 common that regular public access is, the more likely it is to be treated as sui generis.

5. National sub-locations, referencing and data capture

5.1 Once identified, the following national sub-locations should be adopted for all Builders’ Merchants 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, but out of 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:

  • main roads

  • easily accessible positions close to main roads

  • good industrial estates where the position and/or 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

  • 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 that for BLD1 and be of lower quality.

BLD3- Builders’ Merchants in the following locations:

  • ‘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.

  • 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. 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.

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

Such builders’ merchants are unlikely to feature any of the characteristics of either BLD1 or BLD2 properties as described above. Whilst these properties demand no premium above local industrial levels, they do need to be separately data captured to ensure that all Builders’ Merchants 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 Builders’ Merchant in this category can become more prominent and develop the characteristics of BLD2, or in extreme cases, BLD1.

5.2 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.

5.3 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.

5.4 Builders’ Merchants should be valued using an address matrix and the R2010 analysis and valuation scales AXFGIAV1 & VXFGIAV1 in the analysis and valuation access paths respectively.

5.5 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 AGE+ or - code adopted as a Survey Unit Adjustment. It is possible since 21st February 2008 to add a different sublocation to 2nd (& subsequent) Survey Units to send that element to a different matrix. This approach may suit in some situations, though the CCT advocates that the AGE adjustment code is the preferred option.

5.6 There is no SCAT Code for Builders’ Merchants and there will not be one for the foreseeable future (see 5.14 below). However, there should be as much standardisation of the data capture and valuation approach as possible in order to have consistency across the network.

5.7 The survey measurement should be to GIA.

5.8 The method of survey for land should be as per (C) in the attached document, and captured as an Other Addition using the following basis - gross site area less the building footprint (and any unusable land, steep banking, etc).

Survey methods for land used for storage and builders’ merchants

In order that the method of valuation used for land areas at Builders’ Merchants remains consistent with that for general industrials, the valuation method should follow that used locally for the ancillary land. Where the local approach to ancillary industrial land is to assume a proportion of it is reflected in the value of the buildings, the same approach should be adopted for the Builders’ Merchant. See 6.5 below to select £/sq.m to adopt.

5.9 Builders’ Merchants should be captured within I Bulk Class with land as Other Additions. This approach aids the analysis of rental evidence. Prior to analysis, Business Units will have to choose a price at which to place land within the Other Additions Analysis Tables. See 6.5 below for the minimum levels of value to be adopted within Other Addition Tables for analysis and valuation access paths.

5.10 Business 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 using Accommodation Use Code SRM- this secondary survey unit should be data captured as bulk class S and have an appropriate local retail overall sub-location code to drive its value to the appropriate local shop matrix. Business 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 Business Unit and values will tend to be related to local retail overall levels, there is no specific recommendation as to sub-location or value. Clean rental evidence for such showrooms is rarely available at Builders’ Merchants, as the tenant generally does the fitting out.

5.11 Business Units are encouraged to review AUCs as part of the exercise that ensures that Builders’ Merchants’ 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.

5.12 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.

5.13 Car Parking spaces should be valued in accordance with local practice. Where local practice is “car parking reflected”, excess parking for customer (rather than for staff and business visitors) purposes should be valued. See 6.5 below to select £/sq.m to adopt.

5.14 The Primary Description Code used should be IX with the description ‘Builders’ Merchants and Premises’. The most appropriate SCAT Code is 994.

5.15 These changes only apply to 2010 and beyond. During Dual List Maintenance, the changes should be made to the Reval Case only with the Compliance Flag set to ‘Y’ to protect the changes.

6. Market Knowledge Reports and Rental Evidence for R2010

6.1 A single Market Knowledge Report for Builders’ Merchants will be produced prior to producing R2010 valuations by the CCT to offer guidance for Business Units when setting up Valuation Schemes.

6.2 The VOA has obtained rental information from a key ratepayer and is seeking the same from others to ensure that a comprehensive coverage of rental information for the class is obtained.

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

6.4 Once Business Units have amended sub-locations to BLD1, BLD2 and BLD3, the CCT recommends that a FORT1 spreadsheet is run to fill rental gaps.

6.5 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.

6.6 All land codes (LFH, LFG, LFU, LOH, LOG & LOU) should be set in Builders’ Merchant OA Analysis Matrices at the same value/relativity of 1.0. 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.

6.7 In the likelihood that many retail areas within Builders’ Merchants hereditaments are tenant’s improvements, Business Units should consider amending retail line use codes to factors of 0.00 during manual analysis where they are confident that this is the case. This should lead to more accurate analyses of rents.

7. Valuations and valuation schemes

7.1 As noted in 6.1 above, the CCT will produce a National Market Knowledge Report prior to R2010 valuation work to guide Business Units.

7.2 Business 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.

This property is valued using the non-bulk server. The manual can be accessed here.

8. Central negotiations

8.1 Post 2010 discussions have taken place with the key ratepayer representatives for the main operators in the Builders’ Merchant market which has resulted in various changes to this Practice Note, in particular those outlined at 8.2 below. This primarily affects the descriptions of the three sublocations at 5.1 and the valuation methodology for the land areas at 5.8.

8.2 The key features are that:

  • the property must be sufficiently “different” from surrounding industrial/ warehouse properties to warrant the “BLD2” designation. This may for example, be the proportion of land relative to buildings, land to front rather than rear, secure fencing and/or additional prominence.

  • proportion of land to be valued will be the same as for the local industrial tone. For example, if the local tone allows “double the building footprint” as being reflected in the building price, then so too should the Builders’ Merchant basis.

  • land which attracts value shall be valued in accordance with 6.5 above.

8.3 Business Units are advised not to undertake a wholesale revision of Builders Merchants which have not been appealed. The revised advice is to be applied in appeal discussions and assessment maintenance work.

9. Other matters

9.1 The CCT members are available to advise when an issue relating to valuation of builders merchants is not able to be resolved locally.

Practice note: 2010

1. Definition

1.1 Regard should be had to the following definition in order to determine whether a hereditament is to be treated as a distribution warehouse.

1.2 A warehouse of sufficient clear height and floor loading to accommodate racking systems designed to facilitate “just in time” and other goods distribution. The premises will be situated close to the motorway network (or occasionally to a mainline rail inter-connection) and will have excellent provision for loading and unloading goods with sufficient space for the easy movement of large articulated vehicles within the site and for trailer and container parking.

1.3 The class can be further divided as follows

a. The latest ‘state of the art’ Distribution warehouses

  • Likely to have been constructed from the late 1990’s onwards (some earlier in the prime Midlands sites)

  • To have a standard eaves height of 12-14m (bulk stores loftier)

  • Can accommodate fully automated racking systems (floor loading sufficient)

  • Likely to be co-located with other similar adjoining (or very close to) motorway network

  • Likely to have a building to site ratio of about 40%

  • Excellent loading facilities, vehicle parking and access

a. The first generation Distribution warehouses

  • Likely to have been constructed in the period from the mid-1980’s onwards

  • Eaves height of 8m+ - generally in range 8-10m but some with loftier bulk stores.

  • Frequently fitted with ‘hand-picking’ or semi-automated racking.

  • Sometimes inter-mingled with general industrials - usually with good motorway access

  • Typical Building to site ratio of 50-60%

  • Good loading facilities and access - sometimes lacking full vehicle parking areas

1.4 Not covered by this practice note are those warehouse built in the period 1930 to 1980 and subsequently adapted for use as distribution warehouses by the insertion of loadings docks, racking or other features normally associated with the class.

2. Co ordination

2.1 Large Distribution warehouses (over 8000m2) are an Specialist Class (Scat code 151S). Smaller distribution warehouses (generally, but not exclusively in the size range 5000m2 to 8000m2) are the responsibility of Business Units (Scat code 151G). Co-ordination for the class as a whole is the responsibility of the Class Co-ordination Team. The recommendations of the team as to the co-ordination procedures to be followed are contained within R Drive - \vofbrw013\public\CEO1\R2010\Industrial Valuation Panel 3\CCTs\Large Dist Warehouses\Co ordination\LARGE DISTRIBUTION WAREHOUSES - CO ORD.doc

3. Method of valuation

3.1 There is a large pool of rental evidence available for this class of property and the rental or comparison method should be utilised in valuing this class for rating purposes. Values will vary widely across the country .When considering the evidence from new lettings rents will often require adjustment to take account of rent free periods, capital payments, stepped rent arrangements or other incentives. Lettings are often on the basis of minimal fit out and adjustment for tenants improvements will generally be required.

This property is valued using the non-bulk server.

4. Method of measurement

4.1 Properties should be measured to GIA. Referencing requirements are as indicated for general industrial buildings in RM Section 6 part 3 section 380.

5. State of the market

5.1 Throughout the period from 2003 to 2007 there was strong demand by the financial institutions and pension funds for the inclusion of distribution warehouses within their investment portfolio. This was largely down to the existence within the sector of a wide spectrum of tenants with sound covenants willing and able to enter into leases of 15 to 25 year duration. The interest of the institutions acted as a stimulus to promote speculative development , resulting in a the provision of new stock not only within those geographic areas traditionally associated with large shed development such as the “golden triangle” formed by the M1, M6 and M69 motorways but adjacent to previously less favoured arterial roads such as the A1, M18, A14 etc.

5.2 The continual upgrading of the road network, congestion on the motorways serving existing developments and the availability of cheap and sometimes subsidised land in less favoured locations led to strong demand in these “secondary locations” pushing up rents and narrowing the spread of values across the sector as those in the primary locations rose less slowly and in some instances not at all.

5.3 It had been anticipated that the EU directive on drive times would result in a move toward more numerous strategically placed smaller warehouses and away from the trend towards ever larger units. However in the event this did not happen and the period witnessed the development of a significant number of warehouses in excess of 50,000m2.

5.4 The instability in the financial markets in the latter part of 2007, the downturn in the general economy brought about by high fuel and commodity prices and the impact of empty property rates leading up to the antecedent valuation date has had an adverse effect on the market. The number of transactions, both freehold sales and lettings has fallen significantly. Although there is little evidence to indicate falling “headline rents”, incentives to attract tenants have become greater with longer rent-free periods and larger capital payments being offered. New leases more regularly incorporate break clauses and landlords are prepared to consider shorter leases of 10, 5 or even 3 years in duration.

6. Valuation relativities

6.1 Internal valuation relativities to be in accordance with the appropriate dedicated valuation scale VXWLDW.

7. Adjustment for height

7.1 For all warehouses with a post 1990 specification the beacon eaves height to be adopted is 12-14m and the basic price within the valuation should assume a height in this range. However in those instances where the rental evidence is drawn from predominantly older warehouses a beacon eaves height of 8-10m should be assumed.

7.2 When comparing with the post 1990 beacon where the property under consideration has an eaves height above 14m an addition of 1% per additional metre of height or part thereof to 20m is to be made to the basic price or, if lower, a deduction is to be made as follows-

10 -12m eaves height - Deduct 1% per m or part thereof.

Below 10m eaves height – Deduct to 10m as above then 2% per m or part thereof (i.e. at 8m the total deduction to be 6%)

7.3 Discussions regarding adjustments to base price for those warehouses exceeding 20m in eaves height are currently in progress in relation to the 2005 List and a supplementary note to this practice note will be issued as soon as possible.

7.4 When comparing with the mid 1980’s beacon where the property under consideration has an eaves height above 10m an addition of 1% per additional metre of height is to be made to the basic price or, if lower, a deduction is to be made as follows-

Below 8 eaves height – Deduct 2% per m or part thereof.

7.5 For the avoidance of doubt-Eaves height additions are to be made solely to those parts of the warehouse which benefit from the additional height and no adjustment should be made to the matrix price which should assume “beacon characteristics”

7.6 Where there is clear local evidence relating to eaves height additions or allowances that justifies a departure from the scheme it should be followed

8. Quantity allowances

8.1 Quantity allowances or additions should follow local evidence where it exists, particularly in respect of warehouses below 10,000m2 GIA.. A thorough examination of evidence available nationally indicates there should be no adjustments for quantity between 10,000m2 and 50,000m2. Discussions regarding quantity allowances relating to warehouses over 50,000m2 are currently in progress with a consortium of agents in relation to the 2005 List are currently in progress and a supplementary note to this practice note will be issued as soon as possible.

9. Clad rack warehouses

*9.1 An addition of 20% should be made to the base price to reflect the benefits to the hypothetical tenant of a clad rack warehouse.