Question

2,000,000, although this figure is forecast to increase at 1.8% p.a. They anticipate that they will have to offer a one-year rent free period to attract a good tenant and their maximum holding period will be 10 years.

(a). Recent analysis by the research department suggests that rents are forecast to grow at an average of 3% p.a. for prime refurbished property in this location. Exit yields for prime property are estimated at 4.75% (similar to yields on current prime buildings). It is anticipated that rental depreciation for the subject property will be in the region of 1% p.a. Refurbished buildings are let for the equivalent of 1,750,000 p.a. while this building would achieve 1,400,000 p.a. in its current condition.

(b)Prepare investment analysis of this property and advise your client accordingly. You should take account of costs in your analysis and these are typically on the purchase (5% of purchase price), sale (5% of sale price), rent review (5% of new rent), and management (10% of rent payable).