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Valuation in 2020: navigating uncertain times

By Ollie Saunders – Head of UK Commercial Advisory – JLL 

July 15, 2020

The valuation profession has rightly been in the spotlight during 2020.    

The arrival of Coronavirus in the UK was first reported on 31st January, and in the immediate aftermath, property markets continued to function with good levels of liquidity and transparency.   Sentiment remained strong.

But the declaration of the global pandemic on 11th March changed everything.   Markets were disrupted.  In real estate, we could immediately see the impact on the hotel market, and then retail and leisure.  By 17th March, the

entire real estate market was in a world that was uncertain.

Valuation by its nature always has a degree of uncertainty.  In transparent and functioning markets, the profession should deliver valuations which are in tune with the sentiment and analytical with the transactional evidence.   

The normal data points upon which we base our judgements and carry out our analysis became much harder to read in March.  Sentiment was changing by the day, if not the hour, with a large amount of data hitting our desks which was inconsistent. 

The Red Book sets out the criteria for introducing a Material Uncertainty Clause (“MUC”).  Its aim is to ensure that the client is not misled. The principle behind it is that when an unforeseen event hits a market, leading to a reduced level of certainty that can be attached to a valuation due to inconsistent evidence, or a lack of evidence, we need to make sure that the reader is aware that the uncertainty is material.   We were in that world on 17th March with the market needing valuations. 

MUC is not used lightly – it had been adopted in the aftermath of the global financial crisis and remained in place for around 8 months.  It was also introduced after the results of the referendum in 2016. 

Our thoughts soon turned to what we would need to lift MUC – it had to be direct observable market transactions and for market sentiment to be cleared, as well as other indicators and data points that we use

The RICS formed the Material Uncertainty Leaders’ Forum where we agreed the circumstances when we would rescind the clause. The forum’s aim is to discuss the evidence and the sentiment as we get more data points on our desks from a post-Covid market. 

It follows that long dated annuity grade income was the first to be lifted, along with institutional grade primary healthcare.  

Further sectors had MUC lifted – such as supermarkets at the end of May, build to rent and all industrial and logistics in mid-June, and last week Central London offices and student housing.

MUC is not there to hide behind fast moving markets or to take less responsibility for our role in the property market – which is to provide accurate and timely pricing information in an independent manner. When those data points are more limited, we continue to value with all available data; in the height of the pandemic we were looking for as many possible trends from across the property market and wider financial markets.

What has been good to see is the massive collaboration between valuers in sharing market comparable evidence quickly, with a number of sector calls taking place to review the evidence and share the sentiment.  This has played a key role in my view of making sure that the information is available to valuers to come to their own conclusion on the timing of lifting MUC.

The time to remove MUC is a judgement call based on a number of different inputs;  but I hope that when we review how the valuation profession acted in the pandemic, the conclusion will be that we were logical in our thought, collaborative as a group and were aligned with markets – and that importantly, we delivered the right advice to our clients and the property market. 

However, whilst the circumstances have been horrible, I can certainly say that this has been the most professionally interesting times to be a valuer in my career!

First appeared in EG on 14 July 2020

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