Measuring Depreciation in European Office Markets - Just Another Valuation Problem?

In 2005, a research team from the University of Reading and Investment Property Databank funded by the IPF/IPF Education Trust produced a set of depreciation rates for the UK property investment market including rental depreciation rates and the extent of capital expenditure necessary to keep rental depreciation to the reported figures (IPF, 2005). The research was based on definitions and measurement processes developed by Law (2004). This paper extends this work to a number of European office markets (Amsterdam, Paris, Stockholm, Frankfurt, Dublin and London) where long-run data of rental values for both a sample of held property and non-depreciating benchmark data exists. The sample data is held within IPD and the benchmark data is from two firms of international property consultants, CBRE and AtisReal. The research analysed the individual records of over 500 properties held continuously within IPD for 10 years (8 years in Paris) where a full set of rental values and capital expenditure was available for each property. In addition to reporting 10 year rental depreciation and capital expenditure rates using a longitudinal method, the research also analyses different age cohorts and locations within each city to attempt to explain different patterns of depreciation. It also investigates year on year changes in rental values in both the samples and the benchmarks. This final analysis reveals a number of issues including questions concerning the approach to valuations across the different countries adding to the increasing literature in this area.