A
Office refurbishment
- Gross floor area
- 2,800 m²
- Lettable area
- 2,100 m²
- Coverage / floor-area ratio
- 41.7% / 1.17
- Parking demand / on-site upper estimate
- 21 / 18
Area limits are met; parking requires a separate solution.
Three development options for one property
We examine three options for reusing an existing office building. The example shows how planning constraints, parking and delivery time affect the development’s financial outcome and the supportable purchase price.
P-01 · Parameter-based professional appraisal
An illustrative study using assumed data, with no specific site. The development limits are assumptions of the model, not regulations applying to an actual plot. The calculations can be followed using the parameters set out below.
Our conclusion under the stated parameters
The investment question
Does the assumed purchase price support the investment, and which option merits further design?
- B+ · expenditure calculated in the model
- €5.293m
- B+ profit / cost
- 16.4%
- Remaining cost headroom
- €64.0k
The example uses two selected financial conditions: profit must reach 15% of the expenditure included in the calculation, and net present value must be non-negative at an annual real discount rate of 10%. The profit-on-cost ratio is not an annual return; together, the two measures show the effects of profitability and timing. The thresholds are assumptions used in the example, not general professional requirements.
Three options, quantified constraints
In the sample, Option C exceeds the assumed building footprint limit by 100 m² and the gross floor area limit by 1,200 m². We therefore cannot base our assessment of the purchase price on revenue from additional floor space whose feasibility has not been verified.
The critical dependency: parking changes the appraisal
In the model, 36 dwellings and 400 m² of retail space require 40 parking spaces. The upper estimate based on the space available within the site is 18 spaces; the feasibility of securing a further 22 spaces requires separate assessment.
For now, we estimate the number of on-site parking spaces from the available area: we subtract the areas allocated to the building, green space and other open spaces from the site area. We divide the remainder by the estimated area required for one parking space, including circulation. The result is not verified parking capacity; geometric, traffic and relevant authority requirements still need to be checked.
Calculation using the sample assumptions: (2,400 − 1,000 − 600 − 260) / 30 = 18.0 → 18 spaces. In this model, the areas allocated to green space and parking do not overlap.
- Building footprint
- 1,000 m²
- Green space
- 600 m²
- Other reserved external area
- 260 m²
- Remaining for parking and circulation
- 540 m²
An appraisal area allocation; the physical layout requires design verification.
- B · initial total expenditure4,638,000 EUR
- + Parking rights550,000 EUR
- + Related contingency82,500 EUR
- + Additional holding costs22,500 EUR
- B+ · adjusted total expenditure5,293,000 EUR
The assumed 550,000 EUR for resolving the parking shortfall, the associated 82,500 EUR contingency and 22,500 EUR in additional holding costs due to delay together increase the cost of option B by 655,000 EUR. This results in option B+ at EUR 5,293,000. The comparison uses a constant price level and excludes VAT and financing costs.
Off-site spaces can only be meaningfully included if the arrangement is acceptable at the particular location, the required capacity is actually available and lawful use can be secured even if the property is subsequently sold.
Financial appraisal after the adjustment
Financial comparison of all four options
| Measure | A | B | B+ | C |
|---|---|---|---|---|
| Total expenditure | €2,818.0k | €4,638.0k | €5,293.0k | €9,582.0k |
| Annual net operating income | €217.7k | €408.6k | €408.6k | €693.0k |
| Net sale proceeds | €2,845.0k | €6,160.5k | €6,160.5k | €10,866.9k |
| Profit / cost | 1.0% | 32.8% | 16.4% | 13.4% |
| Net present value | €-153.8k | €768.0k | €96.0k | €-304.8k |
| Duration, months | 12 | 24 | 27 | 36 |
Option B’s 32.8% profit on cost does not yet include resolving the parking shortfall. Option B+ also accounts for the assumed cost and time required to address it, reducing profit on cost to 16.4%. The cost of resolving the parking shortfalls in options A and C has not been priced. Even without that additional cost, they do not meet both financial conditions, so the comparison does not imply that every option is ready to proceed.
We estimate net sale proceeds by capitalising stabilised annual net operating income and then deducting selling costs. Operating income is used here as the basis of the valuation; we do not add it again to development income. Applying a common capitalisation rate to residential and commercial uses is a simplification in the example. The detailed PDF sets out unit rates, cost categories and the timing of cash flows.
How much variation can B+ absorb?
Headroom for additional development costs
€64.0kBoth financial conditions would still be met with this level of additional cost, provided all other inputs and the assumed date when the cost is incurred remain unchanged.
How much can rents fall?
1.19%The threshold applies to an equal proportional fall in residential and commercial rents, with all other inputs unchanged. This narrow margin indicates that even a moderate change in the market may require a new decision.
The six sensitivity scenarios
| Scenario | Profit / cost | Net present value |
|---|---|---|
| Base case | 16.4% | €96.0k |
| Rent −10% | 4.8% | €-401.2k |
| Development costs +15% | 4.5% | €-446.3k |
| Capitalisation rate +0.75 pp | 4.3% | €-418.3k |
| 6-month delay | 15.4% | €-93.0k |
| Combined downside | -16.4% | €-1,538.4k |
The model gives an upper purchase price limit of €1,260.9k: headroom of €60.9k above the initial €1,200.0k. This is neither a market valuation nor an offer to purchase. The headroom calculated for the purchase price and for additional development costs cannot be added together: these are two separate sensitivity limits. The cost of unresolved technical and legal issues, and the combined effect of several adverse changes, must be recalculated separately.
Technical and legal assessment
A calculation supports a decision only when its assumptions are understood. Until the questions below are resolved, a favourable outcome remains a possibility. We do not treat an assessment that has not yet been carried out as having a favourable result.
01Development and use constraints
We test assumed site coverage and floor-area limits separately. Passing these tests does not establish permitted use, setbacks, height or protection status.
Required action: We redesign any option exceeding the limits. A planning amendment is assessed separately and is not assumed to succeed.
Evidence required: Zoning provisions, planning map, title and cadastral records.
02Parking and external space
We calculate parking demand from the example’s number of homes and non-residential area, using the ratios in the parameter register. For an actual site, the applicable requirements must be the starting point. An area-based estimate of on-site capacity does not yet establish that the spaces can be laid out in a compliant and workable arrangement.
Required action: We budget separately for missing spaces and their delivery time. External parking requires acceptable, durable and transferable rights.
Evidence required: Dimensioned layout, legal and regulatory acceptability, distance, access and an actual offer.
03Layout and structural suitability
The number of homes is an initial figure derived from the residential floor area and the target average dwelling size. Layout and specialist assessments must confirm that adequate natural light can be provided, circulation areas, escape routes and the spaces required for building services can be accommodated, and applicable accessibility requirements can be met. Floor area alone does not establish that a home is functional.
Required action: We require test layouts and structural assessment. Their findings update lettable area, unit mix and refurbishment unit costs.
Evidence required: Measured drawings, intrusive surveys, structural report, fire strategy and coordinated engineering.
04Utilities and environmental condition
Available utility capacity, the environmental condition of the soil and any hazardous constituents in existing materials still require investigation. A general cost contingency does not replace targeted investigations or demonstrate that every potential additional task can be funded.
Required action: We require capacity statements and targeted environmental investigations. Additional works receive explicit budget lines and programme allowances.
Evidence required: Utility statements, energy-demand calculations, environmental history and sampling where justified.
05Market and financial feasibility
Rent, occupancy, operating costs and capitalisation rate are separate inputs. The calculated value is derived from assumed inputs, not an evidenced market valuation.
Required action: We check inputs against comparable transactions and an itemised estimate. We also review the recommendation under combined changes in costs and income.
Evidence required: Comparable leases, occupier feedback, quotations, and transaction-specific tax and funding review.
Decision conditions and next steps
- 01
Before acquisition completion
Ownership and use rights must be clarified with a legal specialist, and the permissibility of the proposed use and the parking arrangement with the relevant professionals. The lawyer prepares the appropriate arrangements for access for investigations, provision of documents and contractual safeguards.
- 02
Before approving the development brief
We test the brief through measured drawings, layouts, structural and engineering assessments. We update the area schedule, itemised estimate and cash flow.
- 03
Before starting development
The investor can make a decision once the technical, approval, tax and financing conditions and the necessary liquidity reserve are known. Calculated profitability alone is insufficient if the funds required during delivery are unavailable. If a deal-breaking issue remains unresolved, renegotiation, redesign or rejection of the transaction is warranted.
Calculation inputs and limitations
Every calculation starts from the same parameter register. Areas, development limits, unit rates, rental assumptions and timeframes are assumptions of the example. We record outstanding legal and technical matters separately as conditions requiring clarification.
Open the 16 decision-driving inputs
| Parameter | Value |
|---|---|
| Site area | 2,400 m² |
| Assumed maximum site coverage | 50% |
| Assumed maximum floor-area ratio | 1.50 m²/m² |
| Assumed minimum green-space ratio | 25% |
| Other reserved external space | 260 m² |
| Parking area per space including circulation | 30 m²/space |
| Assumed parking spaces per home | 1 space/home |
| Office area per parking space | 100 m²/space |
| Commercial area per parking space | 100 m²/space |
| Target minimum average home area | 60 m²/home |
| B: lettable / gross floor area | 80% |
| Assumed purchase price | 1,200,000 EUR |
| Cost of durable rights to an additional parking space | 25,000 EUR/space |
| Additional time for parking provision | 3 months |
| Target profit on total expenditure | 15% |
| Annual real discount rate | 10% |
Complete register of 65 parameters
| Parameter | Value |
|---|---|
| Site area (site_area) | 2,400 m² |
| Existing front-wing footprint (front_area) | 600 m² |
| Existing front-wing storeys (front_storeys) | 4 storeys |
| Rear-wing footprint (rear_area) | 400 m² |
| Existing rear-wing storeys (rear_storeys) | 1 storey |
| B: proposed rear-wing storeys (new_B_storeys) | 2 storeys |
| C: proposed front-wing footprint (new_C_front_area) | 900 m² |
| C: proposed front-wing storeys (new_C_front_storeys) | 4 storeys |
| C: proposed rear-wing storeys (new_C_rear_storeys) | 3 storeys |
| A: lettable / gross floor area (eff_A) | 0.7500 ratio |
| B: lettable / gross floor area (eff_B) | 0.8000 ratio |
| C: lettable / gross floor area (eff_C) | 0.8000 ratio |
| B: commercial lettable area (commercial_B) | 400 m² |
| Target minimum average home area (residential_size) | 60 m²/home |
| Assumed maximum site coverage (coverage_limit) | 0.5000 ratio |
| Assumed maximum floor-area ratio (far_limit) | 1.5000 m²/m² |
| Assumed minimum green-space ratio (green_ratio) | 0.2500 ratio |
| Other reserved external space (other_open_area) | 260 m² |
| Parking area per space including circulation (parking_area) | 30 m²/space |
| Assumed parking spaces per home (parking_per_unit) | 1 space/home |
| Office area per parking space (office_parking_area) | 100 m²/space |
| Commercial area per parking space (commercial_parking_area) | 100 m²/space |
| Assumed purchase price (purchase) | 1,200,000 EUR |
| Acquisition-cost allowance (acquisition) | 0.0500 ratio |
| Selling-cost allowance (exit_cost) | 0.0200 ratio |
| Target profit on total expenditure (target_margin) | 0.1500 ratio |
| Annual real discount rate (discount) | 0.1000 annual ratio |
| Contingency on works and parking provision (contingency) | 0.1500 ratio |
| Demolition cost per gross m² (demolition_rate) | 100 EUR/m² |
| Cost of durable rights to an additional parking space (external_parking_cost) | 25,000 EUR/space |
| Additional time for parking provision (parking_delay) | 3 months |
| A: Refurbishment unit cost (refurb_A) | 400 EUR/m² |
| A: New-build unit cost (new_cost_A) | 0 EUR/m² |
| A: Design, specialists and preparation (professional_A) | 100,000 EUR |
| A: Monthly holding costs (holding_A) | 10,000 EUR/month |
| A: Letting and mobilisation (letting_A) | 50,000 EUR |
| A: Development and letting duration (months_A) | 12 months |
| A: Stabilised occupancy (occupancy_A) | 0.9000 ratio |
| A: Capitalisation rate (cap_A) | 0.0750 annual ratio |
| A: Residential rent (not applicable) (residential_rent_A) | 0 EUR/m²/month |
| B: Refurbishment unit cost (refurb_B) | 650 EUR/m² |
| B: New-build unit cost (new_cost_B) | 1,150 EUR/m² |
| B: Design, specialists and preparation (professional_B) | 220,000 EUR |
| B: Monthly holding costs (holding_B) | 7,500 EUR/month |
| B: Letting and mobilisation (letting_B) | 80,000 EUR |
| B: Development and letting duration (months_B) | 24 months |
| B: Stabilised occupancy (occupancy_B) | 0.9400 ratio |
| B: Capitalisation rate (cap_B) | 0.0650 annual ratio |
| B: Monthly residential rent (residential_rent_B) | 18 EUR/m²/month |
| C: Refurbishment unit cost (refurb_C) | 0 EUR/m² |
| C: New-build unit cost (new_cost_C) | 1,250 EUR/m² |
| C: Design, specialists and preparation (professional_C) | 550,000 EUR |
| C: Monthly holding costs (holding_C) | 11,666.6667 EUR/month |
| C: Letting and mobilisation (letting_C) | 130,000 EUR |
| C: Development and letting duration (months_C) | 36 months |
| C: Stabilised occupancy (occupancy_C) | 0.9400 ratio |
| C: Capitalisation rate (cap_C) | 0.0625 annual ratio |
| C: Monthly residential rent (residential_rent_C) | 20 EUR/m²/month |
| Monthly office rent (office_rent) | 12 EUR/m²/month |
| Monthly commercial rent (commercial_rent) | 16 EUR/m²/month |
| Owner operating costs / collected rent (opex) | 0.2000 ratio |
| Downside rent reduction (stress_rent) | 0.1000 ratio |
| Downside increase in total development costs (stress_cost) | 0.1500 ratio |
| Downside capitalisation-rate increase (stress_cap) | 0.0075 ratio |
| Downside delay (stress_delay) | 6 months |
Full appraisal and calculation basis
The equivalent 12-page reports contain the professional conclusion, input definitions, development and parking constraints, cost and income calculations, sensitivity analysis and conditions for proceeding.
RICS
Revenue, costs and timing must be assessed together when evaluating development options. We examine changes in key assumptions both individually and in combination. The reference provides methodological guidance; it does not validate the sample calculation.
Valuation of development property ↗ICMS Coalition
Transparent cost classification helps ensure that capital, maintenance and future renewal costs have the same meaning across the options being compared. Both the scope of the costs and when they arise form part of the comparison.
International Cost Management Standard, 3rd edition ↗The cited sources provide methodological guidance. They do not validate the example’s assumed parameters, confer professional certification or attest to full compliance with specific standards. For an actual decision, the calculations must be reviewed using site-specific, market and specialist data.
Discuss the preparation of your project.
The initial discussion reviews the property or proposal, the investor’s objective, the decision deadline and available documents. We use these to define the assessment scope, deliverables and specialist input required.
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