Development Appraisal

What is a Development Appraisal?

The purpose of a development appraisal is to assess the financial viability of a proposed development. The development appraisal will assess many different factors to enable assessment of an accurate land value, whilst ensuring a suitable return is delivered to the development, and making suitable allowance for associated risk.

A development site is typically classed as a site where development or improvements are needed to bring the site up to the best intended use, and often include:

construction of new buildings;
green field land where new infrastructure is being built;
redevelopment of land which has been previously built upon;
alterations and/or improvements to an existing building;
allocated land within a statutory development plan;
development of land in a statutory plan where this is allocated for a more valuable use or higher density.

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When a valuation surveyor is engaged to complete a development appraisal, they will follow the RICS guidance which gives a clear indication of the process that should be followed, the key parameters and further detailed guidance that should be adhered to.

A valuation surveyor will likely use the residual method of valuation to complete a development appraisal as this valuation method allows for the various elements included in a development. A valuation surveyor will assess market information to enable them to calculate the likely level of return which will be achieved by the proposed development, which will also feed in to calculating the residual value of the site.

A development appraisal will give significant emphasis to relevant planning policy as this may impose certain constraints on the proposed development. it will also consider environmental effects etc. which will impact the viability. Should certain statutory obligations reduce the value of the land or likely level of the developers profits below a certain level then the land will not be let go or development not progressed with. This is why the accuracy of the development appraisal is imperative.

A development appraisal is often undertaken to help understand the extent of affordable housing which will be required; to assess the likely/available land uses; and to become aware of the planning obligations.

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What is included in a Development Appraisal?

A large amount of investigation and research will typically be undertaken in order to complete a development appraisal. It is a complex process and will require input from a consultant team, likely to include:

Solicitors to assess titles, boundaries, rights of way etc.;
Planning consultants to advise upon relevant policy and associated implications;
Civil/Structural Engineers to advise upon ground surveys etc.;
Rights of light and Party Wall Surveyors.

Valuation Surveyors to assess market values etc.;

Quantity Surveyors/Cost Consultants to provide construction costs;
Mechanical and electrical consultants to input on services matters;
Archaeological consultants;
Highways consultants;
Environmental consultant to review ecology, tree preservation orders;
Heritage consultant to review requirements regarding Listed Buildings.

A development appraisal should also considered the relevant of a developers business strategy and incorporate discussion around:

Regional importance;
The type, complexity and proposes uses;
Proximity to infrastructure, business/city centres;
The market.

Some element of the aesthetics/appearance of the potential development should also be considered in the development appraisal, this may include:

Form/heights in relation to size and topography of the site;
Condition and status of any existing buildings;
Architectural characteristics and significant of surrounding sites/buildings;

Existing utilities, areas at risk of flood, trees, species etc.
The ground conditions/contamination.

Market research will need to be undertaken by the valuation surveyor and this will incorporate:

The programme for the proposed development, including phased completion;
Local infrastructure and amenities;
Impact of social, environmental and economic trends;
Current demand and market developments;
Change in working practices/lifestyle;
Changes in planning policy and statutory constraints;
Flexibility of the development and alternative uses.
And many others.

Valuation Surveyors have the expertise and market knowledge to understand the various implications and considerations that need to be given when completing a development appraisal.

What are the benefits of undertaking a Development Appraisal?

A development appraisal is a robust document taking into consideration a variety of factors in order to enable a developer to understand the viability of a potential development and to also enable a landowner to understand the residual value of the land. Without this document neither party will be reliably informed to consider these matters.