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Retail Valuation

Retail valuation: location is a top priority

From convenience stores to supermarkets, hypermarkets and restaurants, shops are a multifaceted asset class. Location quality plays the most important role in the valuation of the property and the right to lease. The valuation of a business at the foot of a building (shop) therefore requires a very detailed knowledge of the different types of assets involved as well as a detailed understanding of their immediate environment and marketing factors.

The market is characterised by scarcity when it comes to the best locations. In this context, retail properties such as shops are resilient assets, with little exposure to the risk of vacancies in large cities. They are therefore highly sought after by investors seeking diversification or security tools.

  • 66 %

    Share of investments in shops in France in 2018 compared to retail real estate

  • 22,000 € / m² / an

    Champs-Élysée premium rental value

  • < 2.50 %

    Rate of return for excptional products in Paris  

Our Expert’s Opinion

Pascal Robic

Valuer specialised in retail properties and shops

What are the characteristics of retail assets/ shops ? 

If location is important in the valuation of most real estate assets, this is even more true for retail properties. For example, in the same Parisian street, a difference in exposure to the sun between a restaurant and a brasserie with a terrace will lead to a difference in valuation, whereas this aspect will be irrelevant for a supermarket or a wine cellar. Factors that influence the influx of potential customers, such as proximity to a subway entrance or reputable signage, should also be considered carefully. Each business on the Grounded floor of a building is a unique case making the valuation of retail properties and the right to lease a particularly detailed undertaking. 

 

What are the market trends ? 

The retail market for shops is twofold: sales and rentals. In large cities, most of the retail chains rent the best sites for long periods of time. The sale of walls is limited. As a result, products are scarce when investor demand is strong, pushing up prices. In addition, retail chains tend to look for large surfaces (approximately 300 sq m) in order to set up local shops, to limit competition and reduce charges per sq m, but such surfaces are uncommon in large cities.

 

What are investors' expectations ?

Retail assets at ground floor of a building are highly sought after by investors because of its secure character. Indeed, once the business has a good location, the ceilings on rents resulting from the status of commercial leases limit the tenant rotation of tenants, while leaving the investor with the hope of being able to reassess rent in the long term. However, shopfronts have the disadvantage of smaller surfaces, and therefore higher management costs. 

What are the main criteria for valuing a shopfront?

A sought-after location with favourable marketing factors, is the very first criterion for valuing a retail asset.

Location

This is the essential criterion in the valuation of retail assets

Lease clauses

Rent adaptability

Local marketing factors

Their evolution makes it possible to justify the removal of the rent ceiling

The destination of the premises

Restaurants, all shops

Quality of business nearby

They guarantee an influx of customers

The rent for a shop is capped in principle when the lease is renewed. The lessor may, however, relocate the leaseholder if there is a significant change, particularly when it comes to marketing factors. If it is not possible to revalue the rent at the end of the lease, the rate parameter will be used instead of the market rental value.

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