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

Section 520b: large food stores

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 This instruction applies to Large Food Stores (scat code 152) 750m² to 2,500m² gross internal area and valued overall. Such stores have, in the past, have been synonymous with discounter retailers, but are now occupied by a wide variety of national retailers.

2. List description and special category code

Bulk Class: Shop
Primary Description: CS
List Description: Shop and Premises. It is recommended that this description be over-typed as 'Large Food Store and Premises'.
SCAT Code 152
Suffix G (Generalist).

3. Responsible teams

3.1 Large Food Stores are a specialised class of property. There is an increasing interface between this category of food retailing and the superstore category. As a result, properties in this class must not be dealt with in isolation. The valuations are derived from evidence from a wide geographical area. There must be consideration of valuations and co-ordination across geographical and property class boundaries.

3.2 Property Data Unit (PDU) are responsible for inspections. The National Valuation Unit (NVU) are responsible for valuation.

4. Co-ordination

4.1 The Retail 1 Food and General CCT is responsible for ensuring co-ordination including co-ordination with the lower end of the hypermarkets and superstores scat 139

4.2 Caseworkers have a responsibility to:

  • follow the advice given at all times – Practice Notes are mandatory
  • seek advice from the co-ordination team before valuing a new hereditament
  • not to depart from the guidance given on appeals or maintenance work, without approval from the Class Co-ordination team

4.4 Coordination with hypermarkets and Superstores (SCAT 139) is required particularly at the lower margin (ie around 2,500m²)

5.1 There is no specific legal framework for this class.

6. Survey requirements

6.1 Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.

6.2 Large food stores are measured to Gross Internal Area (GIA)

6.3 An inspection checklist is appended to this section at Appendix 1. It should be completed for all new properties and updated for maintenance work and stored in the property folder of the Electronic Document Records Management (EDRM) system.

6.4 The majority of properties in this category have only ground floor accommodation. Where a property has more than one floor, each floor must be recorded separately and the appropriate accommodation use codes (AUC) recorded. The Referencing Guide Contained in Appendix1 of the Large Stores 2017 Practice Note must be followed. The Valuation Scale used for this type of property is VXSHYPERV1. It is used to value superstores as well as large food stores. As a result some adjustment of the relativities of first floor accommodation in large food stores may be required

7. Survey capture

7.1 Rating surveys should be captured on the Rating Support Application (RSA) and plans and surveys stored in the property folder of the Electronic Document Records Management (EDRM) system.

8. Valuation approach

8.1 The rental method of valuation is the basis for this class of property. When considering rental evidence it is imperative to understand all the factors which may influence the evidence including location, level of competition, physical attributes of the store and how those factors compare, positively or negatively, to other stores, thereby arriving at the correct valuation approach. Rents are analysed to an overall rate per m².

8.2 Rental evidence will emanate from several sources: new lettings, rent reviews will be common and to a lesser extent sale and leaseback transactions. It will be important to assess the reliability of each rent.

8.3 Properties in this class are valued on an overall rate per m² with no end allowance for size

8.4 Large food stores cannot be valued in isolation. Close coordination at the upper size range of this Class is needed to ensure consistency with the lower size range of the Superstores Class (SCAT code 139, over 2,500m² GIA).

8.5 The boundary between large food stores and superstores is blurred. Therefore consideration must be given to the interplay of size and competition in any given location. These factors and their interdependence will be reflected in the rental evidence and must be understood for all the stores.

8.6 Material Change of Circumstance (MCC)

8.6.1 An MCC appeal arising from a claim that the trade of an existing Large Food Store has been affected by the opening of a new food retailing outlet (Convenience, Large Food or Superstore/ Hypermarket) in the locality must be treated with care. Whilst turnover figures cannot be merely dismissed as irrelevant, they do not form primary evidence. If they are to be considered this must be along with all other information, and then weighted accordingly.

8.6.2 Care needs to be taken in deciding what the trading information demonstrates within the rating hypothesis. Certain key stages must be followed:

(i) Was the property correctly assessed, prior to the MCC, having regard to available rental information and comparables? Statutory Authority for this action is outlined in Section 41(1) of the Local Government Finance 1988. See also Lane v Woolway (VO)RA/57/2005 where the Member confirmed that:

“He [the VO] is merely insisting, rightly in my judgement, that any reduction in the assessment to reflect the temporary disability is calculated starting with the correct value, and not an incorrect one”

(ii) What rental information is available on the appeal property and from the basket of rents originally used in valuing the property?

(iii) How does the value of the property compare to similar properties in other locations which are already assessed having regard to levels of competition similar to the appeal property post MCC?

(iv) Is there a proven MCC and has it had an effect on the appeal store? It may be that we request trade information pre and post the MCC to support our decision.

8.6.3 It is only where it can be proven that the property is assessed at a higher level than stores already with similar competition should a reduction even be considered. Any reduction must be then based on comparable assessments and rents, not on a percentage of trade loss. It follows that because of this, there is no correlation between the percentage of trade loss from a particular MCC and a derived percentage reduction in rateable value.

8.7 Customer car parking

Adequate provision for customer car parking is an essential feature of Large Food Stores, both on grounds of planning and store operator requirements. To that extent its presence can be said to be reflected in the value of the stores. It is accepted that at peak times there could be a shortage of spaces.

8.8 If there are unit of assessment issues with car parking related to Large Food Stores reference should be made to the specific guidance on car parking found in the Rating Manual Volume 5 - Section 200: Car Parks

8.9 Where the car parking area has been identified as a separate hereditament it should be valued at a level appropriate to the locality.

8.10 It should be noted that the car park need not be in the control of the food store operator.

8.11 Fitting out

No differentiation in value is made between levels of fit out within the property. One basic rate is applied to main space throughout the store even for offices; stores and plant rooms etc (except plant rooms with ladder access). Different factors may be applied to upper floor accommodation see PN 2017 Appendix 1 Referencing Guide for details.

8.12 Large Food Stores are valued for rating as fitted units. Rents for this class of property are frequently on a shell basis. Before any analysis occurs it is essential to discover the terms of the letting in relation to fit.

8.13 It is universal practice to add a percentage to the shell rent to get to the fitted condition this is generally 10%.

8.14 Key rents

All properties on which a key rent has been identified must be inspected.

8.15 Concessions/ let-outs

9. Valuation support

  • Rating Support Application (RSA)
  • Survaid
  • Class Coordination team Retail 1
  • National Valuation Unit

Rating Manual - Appendix 1

Large Food Store checklist

Practice note 2017 - large food stores (750m² to 2,500m²)

1. Market Appraisal (2008 to 2015)

1.1Historically there has been almost continual growth in the food sector. Like for like sales of the major food operators have generally increased year on year and margins had been maintained. The sector as a whole was buoyant and was largely unaffected by the post 2008 recession.

1.2 During the period since 2008 there has been a perceived shift in food shopping habits, with shoppers shopping more often in a wider variety of stores and retailers. As a consequence, occupiers of large food stores have tended to benefit from this change in shopping trends.

1.3 Discount food retailers who occupy stores within this class, are increasing their portfolios by acquisition of existing stock and by new developments. The national supermarket chains have also changed their profile in this sector. Some have sold some units to other food operators and some to non-food operators.

1.4 By 2015 the four retailing channels of online, discount, convenience and superstore/ hypermarket format were firmly established. The perceived shift in shoppers’ behaviours, (with a change to shopping ‘little and often’ as part of a multichannel approach to meet their grocery needs) has caused the market to fragment. Continued growth for 2015-2019 in the first three areas is predicted. As a consequence, occupiers of large food stores have tended to benefit from this change in shopping trends. This suggests that demand for large food stores will continue to grow.

1.5 This growth is fuelled from both the extension of existing stock and new openings. Two of the main operators in this Large Food Store class, Aldi and Lidl have seen their combined share of the grocery market rise from 5.4% in 2012 to 9% by March 2015. As a result, Aldi has overtaken Waitrose in market share (source Kantar Worldpanel/ BBC News).

1.6 Lidl opened 20 new stores in 2014, with plans for similar future expansion. In the same year Aldi announced it would open 550 new stores in the 8 years to 2022, an almost doubling of its UK retail estate. Also in 2014 Netto announced a return to the UK (after selling its retail estate to Asda in 2010). In a reported joint venture with Sainsbury 15 new stores will be opening.

1.7 Whilst it is true that the there have been some store closures announced by the major operators such as Sainsbury and Tesco during 2014/2015 these have been relatively small numbers and looking behind the headlines, the closures fell into ‘fairly marginal’ locations and in places that were already well catered for by existing food outlets.

1.8 The current market share of the leading discount food retailers in the Large Food Store Class for the three months ending March 2015 was

  • Aldi 5.3%
  • Lidl 3.7%
  • Iceland 2.1%

Source: Statisca

1.9 There is evidence that new and redeveloped stores in this class of property are becoming larger and are likely therefore to be attractive to a wider range of food retailers as the change in shopping habits is widening the appeal of smaller stores catering for smaller more regular shopping trips.

2. Changes from the last Practice note

2.1 There was no Practice Note for the 2010 Revaluation.

3. Ratepayer Discussion

3.1 There have been no collective discussions with agents representing the main occupiers.

4. Valuation Scheme

4.1 Large food stores may be split into two broad categories:

(i) Modern, purpose-built stores. These are often termed ‘concept stores’ by discount retailers. These are typically between 1,000m² and 2500 m². They are almost exclusively ground floor only units

(ii) Older stores, built prior to the advent of discount operators. These may be single or multi-floored

4.2 The valuation scheme for this class of property is based upon actual rents. The overall rate/ m² adopted will vary according to the location and physical characteristics of the store. It will be necessary to adjust inclusive or shell rents in terms of rateable value.

4.3 The majority of large food stores are single storey. The market approach to valuation is based upon a single rate/m² applied to the GIA of the property. The rate is derived from adjustment and analysis of rental evidence.

4.4 Some large food stores have accommodation on more than one floor. This will generally be ancillary accommodation and is usually in older stores

4.5 A guide to the approach to be taken is set out in Appendix 1 to this Practice Note.- Large Food store Referencing Guide. Compliance with this Guide is mandatory.

4.6 It should be noted that an alternative method of valuation may have been used whereby a single overall rate is applied to the total GIA of a multi floored property this will distort the value applied to the ground floor and such properties cannot therefore be relied upon as being comparable to ground floor only units.

4.7 If multi floored stores are to be used for comparative purposes for single storey stores, a full understanding of how the analysis and valuation was reached on multi-floored stores is essential; without it single storey stores may be undervalued.

4.8 Rental evidence will reflect the location, including the amount of competition, the physical characteristics of the store and the availability of parking.

4.9 Rents for these properties are often on a shell basis. The valuation for rating is as a fully fitted unit. Therefore, an upward adjustment from the shell rent must be made this is generally 10%.

Practice note - Appendix 1

Building Feature commonly found in Large Foodstores AUC 2010 Line Entry % 2010 AUC 2017 Line Entry % 2017
Ground Floor Main Building Envelope
Includes Retail, offices staff facilities storage/warehouse plant rooms TFA 100% TFA 100%
Upper Floor Main Building Envelope
Retail and /or office and/or Staff accommodation  Only TFA 100% TFA 100%
Where Upper floor less than 20% of GF GIA TFA 100% TFA 100%
Where Upper floor greater than 20% of GF GIA  and majority of FF used for storage with some office or staff WHS 50% apply Quality adjustment of  0.666 so factor = 33% WHS 50% apply Quality adjustment of  0.666 so factor = 33%
Mainly Upper floor greater than 20% of GF GIA and majority of FF used for office and staff with some storage OFF 100% apply Quality adjustment of 0.5 so factor = 50% OFF 100% apply Quality adjustment of 0.5 so factor = 50%
Smoking Solution in the form of roofless terrace at upper level TFA Apply Quality adjustment 25% overtype Smoking Area TFA Apply Quality adjustment 25% overtype Smoking Area
External
Storage ASO 25% ASO 25%

2017 Rating List Instructions for Data capture and valuation of solar panels where electricity is consumed by the host store

Record the number of panels, date commissioned, and total capacity in kW. Where it is not possible to obtain the kW capacity of the installation. Apply the appropriate cost per kW and record under P&M section of host store valuation the appropriate decap should then be applied. Where the capacity is less than 50kW the installation is exempt for the life of the list in which it was commissioned. In such cases details of the installation should be recorded but no value applied.