Rating Manual section 5a: valuation of all property classes - Retail warehouses - Guidance

1. Scope

1.1 This section of the Rating Manual covers all retail warehouses whether adapted or converted buildings or purpose-built. It also applies to ‘bulky goods’ retail warehouses situated on retail parks, and retail warehouses with ‘open A1’ planning consent. The definition applies equally to ‘stand-alone’ solus retail warehouses, as well as those situated on ‘trading estates’ or ‘shopping parks’.

1.2 The retail warehouse class includes all non-food retail units and non-distinct food retail units (see paragraph 1.3 below) without restriction to size. Generally their construction identifies a greater visual similarity to warehousing than to that of standard shop units. They can be distinguished from property including department stores and standalone food stores. Retail warehouses typically comprise a single floor, the majority of which is devoted to sales, with some ancillary storage and office use.

1.3 Historically, foodstore operators have held a limited presence on retail warehouse parks. The sale of groceries has generally been restricted by conditions attached to A1 planning consents under The Town and Country Planning (Use Classes) Order 1987 (as amended). For a foodstore operator to occupy space on a retail park, planning permission is typically sought for a relaxed non-restrictive A1 planning consent, enabling the sale of groceries. This may be in the form of an application for the lifting of an existing restriction where the unit was formerly occupied by a non-food operator, or in the case of a new development, a non-restrictive A1 use being granted from the outset. The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020, and further amendments to the Town and Country Planning (General Permitted Development) (England) Order 2015, confirm retail warehouses fall within Class E. This enables them to offer a wide range of retail and lifestyle goods which in turn attract a wide range of custom. There may still be restrictions on the types of goods sold, or the amount of space devoted to certain products (e.g., bulky white goods or food).

1.4 Where a food operator occupies a distinct unit on or at the periphery of a retail warehouse park, the valuer should consult the Class Co-ordination Lead within the National Valuation Unit (NVU) for further advice and guidance.

1.5 Retail warehouses may be sited singly or grouped together, most frequently at fringe or out-of-town locations. The provision of car parking is often extensive and typically shared, as is the case at retail parks.

1.6 This section does not deal with Factory Outlet Villages (SCAT 097(S)). These are covered in the Rating Manual: Section 5a: Valuation of all Property Classes – Factory Outlet Villages.

1.7 This section does not deal with Hypermarkets and Superstores (SCAT 139(S)). These are covered in the Rating Manual: Section 5a: Valuation of all Property Classes – Hypermarkets and Superstores.

1.8 This section does not deal with Large Shops (SCAT 155(S)). These are covered in the Rating Manual: Section 5a: Valuation of all Property Classes – Large Shops.

2. List description and special category code

2.1 Special category code (SCAT) 235(G) is to be adopted for retail warehouses. The relevant suffix letter will be G, as retail warehouses are a ‘Generalist’ Class. Responsibility for ensuring effective co-ordination of this class rests with the Regional Valuation Units (RVUs), with guidance from the NVU and the Retail Class Co-ordination Team (CCT).

2.2 The SCAT, Primary Description Code (PDesc Code) and primary description available for retail warehouses are as follows:

SCAT Code: 235(G) Retail Warehouses
PDesc Code: CS10, using the default primary description of ‘Retail Warehouse and Premises’

2.3 The default primary description should not be overwritten.

2.4 The SCAT, PDesc, or general description of the class is not determinative of the way in which the class is to be valued.

3. Responsible teams

3.1 Valuations for retail warehouses are a generalist class.

3.2 Requests for Information should be made on forms of return (FOR) as appropriate. FOR VO6003 is sufficient to seek the information needed to undertake valuations, but following up with a VO6005 may be required to seek further and specific particulars as regards fitting out. This includes tenant added first floors (mezzanines) and plant and machinery.

3.3 Where information is missing, due diligence should be undertaken and the details confirmed with the source.

3.4 The VO can request information to be supplied which it considers will assist it in carrying out its statutory functions. This is in accordance with Schedule 9 (5) of the Local Government Finance Act 1988.

4. Co-ordination

4.1 Generally

4.1.1 The Retail CCT has high-level responsibility for the co-ordination of this class. The CCT is responsible for examining the approach in undertaking valuations for retail warehouses. The CCT will deliver practice notes outlining the valuation basis for revaluation purposes and provide advice as necessary during the life of rating lists.

4.1.2 The framework for co-ordination is shown in the Rating Manual: Section 5: Valuation Practice – Part 1:Co-ordination of Revaluation.

4.2 Tenant Added Supported First Floors (Mezzanines)

4.2.1 Guidance in respect of the valuation of tenant added supported first floors in retail warehouses is provided in the Rating Manual: Section 5a: Valuation of All Property Classes – Retail Warehouses for the relevant rating list.

4.2.2 When compiling rating lists, co-ordination of approach to mezzanine floors is only necessary if, for whatever reasons, the ‘backstop figures’ proposed in practice note (for the relevant rating list year) are not incorporated into the RVU’s ‘Other Addition’ tables within the Valuation Support Application (VSA) in the Rating Support Application (RSA). For example, where costs in individual instances are used to establish the appropriate addition to make, these also should be co-ordinated with neighbouring Units. Similar action should be taken if rental evidence begins to emerge indicating a relative level of value, expressed as a percentage of ground floor value, as appropriate.

4.2.3 Any bespoke costs and rental evidence associated with first floor additions such as mezzanines should be forwarded to the CCT or the Head of the Commercial Valuation Panel within the NVU for further consideration.

4.2.4 Once a rating list is published, levels of value in respect of retail warehouses where tenant added floors are in issue are expected to become settled over time. Although tenant added floors comprise only part of the overall rateable value to be determined, co-ordination is recommended to ensure that these are dealt with consistently across the class.

5. Legal framework

5.1 Generally

5.1.1 The guidance contained in the Rating Manual should be considered as appropriate. In particular, see the Rating Manual: Section 2: Valuation Principles: Part 2: Hereditament as regards identification of the hereditament. For guidance as to the adjustment and analysis of rental evidence, the rental adjustment practice note at Rating Manual: Section: Valuation Methods: Part 1: Practice Note 1 – Rental Adjustment should be referred to.

5.2 Rateability

5.2.1 No difficulty should generally arise in establishing the rateability of retail warehouses and the four tenets of rateable occupation as set out in the Court of Appeal decision of John Laing and Son Ltd v Kingswood Assessment Committee [1949] 1 KB 344 CA will ordinarily be readily satisfied.

6. Survey requirements

6.1 Inspections

6.1.1 Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice. Arrangements for inspecting properties for non-domestic rating purposes should comply with the Valuation Office policy on inspections. Guidance can be found in the Rating Manual: Section 5: Valuation Practice: Part 4: Inspections and Miscellaneous Administrative Matters.

Basis of Measurement – GIA

6.1.2 The preferred method of measurement, and the one usually adopted by the market is Gross Internal Area (GIA). GIA is defined as the area of the building measured to the internal face of the perimeter walls at each floor level. It includes columns, stairwells, lift wells, escalator wells, internal projections, ducts, and the like, in addition to corridors of a permanent essential nature (e.g., fire corridors). However, it is known that some retail warehouses have historically been measured to Net Internal Area (NIA). Care must therefore be taken when comparing analysed rents and base prices with those of other retail warehouses. Where NIA has been adopted, it may have been on a factorised basis (see 8.3.3 below for further detail).

Unit of Assessment

6.1.3 Let outs (or concessions) to third parties may meet the criteria for a separate assessment, provided they meet the four tenets of rateable occupation. Such let outs need to be considered on a case-by-case basis and the degree of control retained by the host store must be examined. On inspection, gather sufficient details as regards third-party occupations; including the extent and location of occupation within the host store. The terms under which the occupation is held, e.g., licence or lease should be examined. For further advice and guidance, contact the NVU. See paragraph 7.2 below.

6.2 Value Sensitive Aspects

6.2.1 All features and key comparative elements likely to have a bearing on value should be recorded in sufficient detail. These include:

The age and type of the particular building, and of its surroundings.
The size and shape of the sales area.
The amount and position of the storage relative to the sales area.
The convenience of the access and loading facilities.
The ease and adequacy of parking.
Individual characteristics which need noting include storage heights, varying floor levels, and the position of pillars and any obstructions.
Whether the unit is occupied by a ‘food operator’ and has a less restrictive planning use than other non ‘food operators’ in the locality.

6.3 Survey Requirements

6.3.1 An inspection checklist is included at Appendix 1. Key characteristics to be noted include the following:

Internal	1	Entrance	Single / Sole / Shared / Front / Side / Rear / Dual / Multiple
	2	Walls	Structural / Non-structural / Partitions / Finish
	3	Floors	Solid / Timber / Concrete / Power Floated / Kilonewton / sq. m. (kN/m2 ) (for tenant added mezzanine floors - see the appropriate revaluation practice note attached to this rating manual section)
	4	Ceilings	Finish / Suspended Ceiling / Floor to Ceiling Height
	5	Frontages / Displays	Construction e.g., Plastic coated / Profiled Steel etc. Glazing (Single, Double, Tinted etc.) / Return Frontage /
	6	Heating	Air Conditioning or Space Heating / Type of Fuel / Type of System (e.g., Air Handling Unit and Ducted Air, Cassette System / Radiators, Ducts, Underfloor Heating), Total Extent
	7	Fire Protection	Inside: Sprinklers / Smoke Detectors / Internal Procedures and Precautions / Risk Assessment
	8	Lighting	Natural / Artificial / Quality / Strip Fluorescent / Inset / Downlighting / Suspended
	9	Toilets	Male / Female / Disabled / Gender Neutral / Baby Change / Quality / Total Extent
	10	Lifts	Type (e.g., Manual / Automatic) / Hoist / Goods / Passenger / Staff / Customers, Load Capacity (in terms of persons and Kilogrammes) / Floors Served / Total Extent
	11	Security	CCTV (Including Numbers of Cameras and Type of System) / Other Surveillance / Security Systems
External	1	General Description	Construction e.g., Block / Brick / Steel Portal Frame / Timber / Cavity Wall / Solid Wall / Age / Type e.g., Purpose-Built / Adapted / Converted) / Fascia / Location / Situation / Other Property Uses / Other Occupiers
		Car Parking	Allocated / Communal / Open / Covered / Total Number of Spaces / Staff Parking / Customer Parking / Free / Pay and Display / Penalties / Refunds / Time Restricted
		Fire Protection	Outside: Separate tanked supplies and other fire prevention systems.
		Security	CCTV (including numbers of cameras) and other security systems.

6.4 Plant and Machinery

6.4.1 Adequate information regarding all items of plant and machinery should be carefully recorded. Details will be required not only to assess their effect on value but also in the event of particulars being sought by the ratepayers or their agents under The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (as amended). Further guidance can be found in the Rating Manual: Section 5: Valuation of all Property Classes: Valuation of Plant and Machinery and in the VOA Cost Guide.

7. Survey capture

7.1 Rating surveys should be captured on the RSA. Photographs should also be uploaded to the RSA. All relevant notes, plans and surveys and the completed inspection checklist (see Appendix 1) should be stored in the Property Folder of Electronic Document and Records Management (EDRM).

7.2 Separately assessed third party occupations should generally be SCAT coded using the 500 series codes as shown in Survaid and suffixed G. For example a separately assessed coffee shop within a retail warehouse should be SCAT coded 500(G).

8. Valuation approach

8.1 General

8.1.1 Retail Warehouses are typically rented and there is generally sufficient evidence available to establish a basis for the standard unit of comparison.

8.2 Types of Retail Warehouses

8.2.1 Historically, the development of the retail warehouse concept has been described in terms of ‘generations’. Looking back, this development over time has resulted in different types of retail warehouses. These are described below:

1	Older buildings converted from either warehouse or industrial use and situated in an area of similar buildings.
2	Late 1970’s and through 1980’s: Purpose-built retail warehouses situated away from the older industrial estates with a tendency to be on a single site in a prominent position, convenient to consumers travelling by car. Size bands: 900m2 to 1,400m2 – Often comprising electrical, carpet and DIY operators, albeit with limited product ranges. 400m2 to 2,800m2 – Often comprising carpet, furniture and larger DIY and electrical operators. 3,250m2 to 3,700m2 - Often comprising a single solus site, occupied by a DIY operator.
3	Late 1980s and through 1990’s: The creation of more modern retail estates or parks. Sometimes with a ‘terrace’ of larger retail warehouses, offering a range of bulky goods. Internally, some retail units have a ‘high street’ feel, offering a diverse range of goods and services such as holidays and furniture. Mezzanine floors are installed where need has arisen and where floor loadings and height can accommodate them. Some larger ‘stand-alone’ sites have been developed during this period, mainly for DIY type occupiers and for large bulky goods like beds and furniture.
4	From the mid-1990s towards 2010: Larger modern purpose-built retail warehouses were being constructed with units of 4,000m2 to 6,000m2 not uncommon. Certain DIY retailers developed units up to 10,000m2 during this period. New retail warehouses were built with ‘mezzanines in mind’ with the roof apex and eaves heights maximised and internal restrictions kept to minimum.
5	From 2010: Occupiers sought retail warehouses with ‘Open A1’ consent and a real ‘high street’ or at least a ‘modern’ retail feel. In some instances tenants would fit the unit to a high standard and insert mezzanine floors where required. During this period some of the older parks were completely redeveloped, or modernised and / or extended. This reflected the demand from prospective tenants for high quality units with the adaptability and flexibility to insert mezzanine floors. During this period, larger units (of around 10,000m²) occupied by DIY merchants fell from favour somewhat. Some of these have since and continue to be divided into two or more units. Note that it is sometimes cheaper for the developer to demolish the unit and build new units on the same site.
6	From 2016: The retail warehouse market was still considered strong with new entrants to the market and the continuing expansion of existing companies. Vacancy rates were at their lowest level for 20 years (4.9% nationally) and empty units were filled quickly when vacated. April 2017 saw the introduction of the 2017 Rating List and revised assessments for retailers with some seeing increases in their liabilities whilst others saw reductions. An additional cost for retailers was the steady rise in the living wage. Retailers have faced additional import costs with the weakening of the pound, either passing these on to the consumer or absorbing the extra cost themselves.
7	From 2021: Economic headwinds and austerity in general led to the tempering of consumer spending and a subsequent focus on achieving value for money through weighting available spend towards essential items. As such, it was generally discount operators and competitive foodstore operators focusing on essential product lines that were driving acquisitions, footfall, and lower vacancy rates associated with retail warehouse and out-of-town parks. Vacancy rates were in decline compared to the peak of the COVID-19 pandemic, with the class reflecting low vacancy rates, stabilising broadly at 2% in Q2 of 2024. The acquisitive nature of discount and foodstore operators, coupled with supply and demand dynamics created opportunities for rental growth, particularly as regards parks with a stronger and more diverse occupier blend. As such, net effective rents for retail warehouses were generally projected to strengthen in the short to medium term.

The rise of internet shopping has influenced structural change in the retail market. Landlords of out-of-town parks have responded to this by integrating established multiple retailers to the tenant mix. The introduction of such operators has seen the retail warehouse sector evolve, with leisure, fitness and food and beverage operators now generally being incorporated into what are considered the superior parks. The collective mix of occupations and associated offerings are considered as having enhanced the consumer shopping experience, increasing dwell time and consumer spend.

Economic pressures have led to opportunities for others. ‘Discount operators’ and ‘food operators’ have continued programmes of expansion, through taking occupation of vacant units and working with developers to achieve a presence on new retail warehouse park developments. The attractiveness of retail parks as a shopping location is evidenced by the increase of both budget and high-end food outlets that have appeared on retail parks over recent years. Landlords and other retailers now generally see ‘value operators’ and ‘food operators’ as major drivers of footfall. As such, prime parks with low vacancy rates and anchored by ‘food operators’ with strong weighted average unexpired lease terms (WAULT) have been attracting strong levels of investor demand. Weaker parks reflective of a less diverse tenant blend and more restrictive planning consents, are still considered as likely to be attractive to opportunistic investors from an asset management perspective.

8.3 Rentals Method

8.3.1 There will normally be adequate rental evidence to enable all retail warehouses to be valued on the rental comparison valuation basis.

The Overall Approach

8.3.2 Wherever possible, a rental analysis using the Gross Internal Area (GIA) basis of measurement should be adopted. When valuing retail warehouses, great care should be taken to compare ‘like-with-like’.

The Factorised Approach

8.3.3 Where net internal area (NIA) has been adopted (see paragraph 6.1.2 above), it may be helpful (where the comparable rents providing the best assistance are somewhat dissimilar) to use a factorised approach. Detailed adjustment will be required so that a proper comparison can be made.

As a Cross-Check

8.3.4 Where GIA and NIA survey data is held it may be helpful to value in the alternative (i.e., either 8.3.2 or 8.3.3 above) as any anomalies which arise can then be further investigated and tested to see if patterns emerge.

8.4 Rental Approach

8.4.1 The adjustments required to the rent, if any, are covered in more detail in the rental adjustment practice note at Rating Manual: Section: Valuation Methods: Part 1: Practice Note 1 – Rental Adjustment. The adjusted rent is expected to be analysed adopting the appropriate area (in terms of main space (ITMS)) to produce a rate per m2. This will allow comparability with similar properties to be explored.

8.4.2 It is anticipated that a rentals approach using GIA establishes a relationship or pattern in similar retail warehouses which confirms or underpins a scheme of valuation.

8.4.3 In arriving at a rateable value, the VO needs should attach appropriate weight to the evidence available following established principles, in line with the Lands Tribunal decision in Lotus and Delta Limited v Culverwell (VO) and Leicester City Council [1976] RA 141. In addition, the following should be considered.

Field of Rental Evidence

8.4.4 The market for retail warehouses varies between locations which are local and those which are regional. For example, those which adjoin a Regional Shopping Centre should be compared with others similarly located.

Full Facts Required

8.4.5 Rents which do not at first sight appear to support the levels of other comparables should be carefully investigated so as to ascertain the reason. They should not be discarded too readily. The veracity of information associated with key rents should be fully verified.

Geared Rents

8.4.6 It may be the case, particularly with the older retail warehouses, that a geared rent provision applies. This will often mean that the higher of either the retail warehouse rental value, or one based upon a percentage uplift from another use (for example 120% of general industrial / warehouse use) has been determined. In such cases examination and consideration of the wording of the actual clause in the lease in relation to the subject hereditament will be necessary. The effect on levels of value is likely to vary with the circumstances found.

8.4.7 However, the weight to be attributed to a geared rent may be seriously undermined and it should therefore be noted that the rent is on a geared basis. This goes to the weighting of such evidence.

Upward Only Rent Reviews

8.4.8 Care will be needed if the rent has been reviewed under an upward only rent review clause. If rental values have fallen, the upward only clause will prevent the true market rent from being agreed between the parties.

Shell or Fitted Rents

8.4.9 It is necessary to clearly identify the basis upon which rents have been determined so as to be able to apply the correct adjustment to bring them in line with the statutory hypothesis. Instances may be found where the lease states that the basis should be the shell of the major part of the hereditament, but with any office accommodation being assumed to be fitted out.

Incentives

8.4.10 A rent with incentives should be adjusted with care. Guidance is available in the rental adjustment practice note at Rating Manual: Section: Valuation Methods: Part 1: Practice Note 1 – Rental Adjustment. Further guidance can also be found in the RICS Valuation – Professional Standards UK January 2014 (revised April 2015) – UKGN 6 Analysis of Commercial Lease Transactions. When considering how to approach the impact of incentives and inducements on the rental value, it is important to ascertain the full facts and circumstances.

8.4.11 In Edma Jewellers v Moore (VO) [1974] LT RA 343, J H Emlyn Jones Esq FRICS held (at page 350) “it becomes necessary to examine closely the facts of each case in order to appreciate the value of the expenditure to the actual tenant; and this must involve an attempt to understand his thinking and his expectations at the time when he undertakes to carry out the expenditure…all expenditure must be looked at on its merits when considering the formula to be used in converting capital sums to their annual equivalents.”

8.4.12 Such considerations have particular relevance when deciding how far over time the incentives should be taken. Generally it is assumed the landlord takes a longer view than the tenant, but there are often other considerations that have a bearing on the situation. Consult the NVU for further advice and guidance.

8.5 Tenant Added Supported First Floors (Mezzanines) and Other Improvements

8.5.1 When considering the additional value of a mezzanine floor, all primary rental evidence should be reviewed. Such a review should also include any other appropriate additions for the tenant’s fitting out, including air conditioning (see also paragraph 8.6 below), suspended ceilings, lighting, security etc. In other words, it is inappropriate to deal with the tenant added supported first floor (mezzanine) in isolation, without considering the correctness of the valuation of the whole unit.

8.5.2 The use of all the rental and comparable evidence available will ensure that any uplift adopted for the mezzanine floor will be based on a firm and defendable foundation. Valuers will also need to consider the value effect of variations in clear height of the unit itself, without which the addition of a mezzanine would not be possible.

8.5.3 At the same time, consideration will need to be given to correctly maintaining the accuracy of comparable assessments of standard retail warehouse units (those without mezzanines) in the particular locality, adjustments being made upwards or downwards as appropriate.

8.5.4 For valuation, reference should be made to the Rating Manual: Section 5a: Valuation of All Property Classes – Retail Warehouses for the appropriate list year.

8.6 Air Conditioning

8.6.1 It is often difficult to discern the impact of air-conditioning on the rents passing in retail. It is a feature of the overall tenant’s fitting out and, whilst it can probably be incorporated in a new fit out and therefore used by a subsequent occupier, it might just as easily be removed as part of any new fitting out.

8.6.2 Care should be taken not to be persuaded by a dismissive approach to the occupiers’ ‘fitting out’. The air-conditioning is of value to the actual tenant, and the hypothetical tenant fresh on the scene not only wants the retail warehouse as it is, but the hypothetical tenant includes the actual tenant who does very much value the fitting out. In other words, it is of value to the occupier. It also follows that it is of value to the hypothetical landlord.

8.6.3 The decision in Berry (VO) v Iceland Foods Ltd [2015] UT(LC) RA 201 provides some guidance on this point; the UT(LC) considered the value of a bespoke air handling system (AHS) fitted by Iceland. The decision should be considered in full and in context - however, at paragraph 122 the UT(LC) stated:

“The issue is therefore whether the parties to the hypothetical letting of the appeal property would agree a higher figure to reflect the presence of Iceland’s bespoke air handling system. We are satisfied that they would so the remaining question is how much higher a figure would they agree? Both parties must be assumed to be willing to transact for the premises including the system, but neither party can be assumed to have a whip hand. The notional landlord must be taken to appreciate that the system is too powerful to meet the needs of most tenants in the market for a retail warehouse, and who would be unlikely to be willing to pay more than the £4 per sqm at which they would value the more modest system which would satisfy their requirements. The prospective tenant who wished to trade in Iceland’s style (and there was evidence that Iceland was not the only such trader, although its direct competitors are relatively few in number) would realise that if it did not take these premises with a suitable air handling system already installed, it would be necessary for it to install its own system at a cost to it of £4,384 a year. In addition to that cost the hypothetical tenant would incur the time and inconvenience of fitting out, for which no rent-free allowance can be assumed, and the likelihood that the system would have to be removed at the end of the term. In our view the landlord would be in the stronger negotiating position and would argue that £4,325 was too low a figure to reflect the value and convenience of the existing system.”

8.6.4 Air conditioning is not generally reflected in the basic level of value determined for retail warehouses and will generally fall to be included as a separate addition. Valuation advice for air conditioning on retail warehouses can be found in the Rating Manual: Section 5a: Valuation of All Property Classes – Retail Warehouses for the appropriate list year.

8.6.5 In ascertaining an appropriate addition for air conditioning, the recommended approach is:

Firstly, to seek rents which already include the value of air conditioning, either the rent on the subject property or comparable rents elsewhere.
Such rents should be adjusted and analysed to quantify the effect of air conditioning on the rental market being considered.
Comparable assessment evidence should be considered, and this includes additions, previously accepted, or agreed in respect of similarly specified air conditioning systems.
Where no comparable rental or assessment evidence can be found, an addition generally will be appropriate, ideally calculated using the cost of providing the actual system installed at the subject property.
Once the actual cost of provision is established, this should be converted to an annual equivalent.
In the absence of any more reliable evidence, a backstop figure may be applied to the areas benefiting from air conditioning.
The value of air conditioning is only one of several value significant factors affecting the hereditament, and as such, should not be treated as a separate issue.

8.6.6 Air conditioning is not reflected in the basic level of value determined for retail warehouses and should be included as a separate addition.

8.6.7 However, in order to establish the appropriate addition for air conditioning, regard must be had to the Supreme Court decision in Iceland Foods Ltd v Berry (VO) [2018] UKSC 15 to clarify whether the system itself is rateable. This considered the wording in The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (as amended).

“Plant and machinery which is used or intended to be used in connection with services to the hereditament or part of it, other than any such plant or machinery which is in or on the hereditament and is used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes.”

8.6.8 The Supreme Court determined that “a ‘trade process’ is simply a process (in that wide sense) carried on for the purposes of the trade”. Where the services provided by the relevant plant are used ‘mainly or exclusively’ as part of the trade process, they should not be considered rateable. When considering this issue, the Supreme Court comment should not be considered in isolation but must be understood in the context of the whole decision.

8.6.9 In the case of Iceland, the services provided by an air handling system, used in connection with refrigerated goods at the property, were determined to be classed as part of the ‘manufacturing operations or trade processes’ and therefore not rateable.

8.6.10 For more information on the approach to tenant’s improvements when making rental adjustments, refer to the Rating Manual: Section: Valuation Methods: Part 1: Practice Note 1 – Rental Adjustment.

8.6.11 For valuation, reference should be made to the Rating Manual: Section 5a: Valuation of All Property Classes – Retail Warehouses for the appropriate list year.

8.7 Car Parks / Parking

8.7.1 In undertaking valuations of retail warehouses, the importance of adequate car parking facilities will need to be kept in mind. Any incremental value arising from the parking being within the same occupation may need to be isolated when comparison is being made with other units without such facilities.

9. Valuation support

9.1 Valuations of retail warehouses should be undertaken on the Rating Support Application (RSA), which contains a bespoke valuation scale for retail warehouses. This is expected to form the basis of any valuation scheme for the class.

Appendix 1

Practice note: 2023 - tenant added supported first floors in retail warehouses

1. Market appraisal

1.1 This practice note applies to Retail Warehouses of the following types:

older buildings converted from a previous warehouse or industrial use
1980s or 1990’s modern estates or parks
mid 1990s and 2000’s larger, modern purpose-built units
from early 2000’s, modern retail parks with a high street feel
fully fitted retail warehouses
retail warehouses accommodating ‘food operators’

1.2 Retail warehouses are mainly located just outside of large cities/ towns. They are generally easily accessible from major arterial roads and have a prominent frontage towards the major roads. It is usual to find a number of retail warehouses located on a site providing the consumer with a mix of retailers. Historically, retail warehouses have been occupied by large national DIY retailers and a mix of discount and middle range electronic and clothing suppliers. On the most popular sites, it has been common to see the presence of a number of dining companies and cafe outlets. Car parking is usually free on these sites albeit with parking restricted to two or three hours.

1.3 The retail warehouse market experienced a period of prosperity from 2013 until 2017. This was driven by lower fuel prices enticing people to out of town destinations, the increased popularity of click and collect, and greater occupier diversity as high street retailers and restaurants explored the out-of-town market. Established retailers of white goods and electrical goods also continued their programs of expansion. The increased demand and restricted supply placed upwards pressure on rents, which in turn resulted in tenants being unable to secure incentives when entering into a lease. The improvement in rents also meant that landlords could consider refurbishing or extending the existing supply and building new retail warehouse parks to meet the high demand.

1.4 In 2016 the retail warehouse market was still considered strong with new entrants to the market and the continuing expansion of existing companies. Vacancy rates were at their lowest level for 20 years (4.9% nationally) and empty units were filled quickly when vacated.

1.5 April 2017 saw the introduction of the 2017 Rating List and revised assessments for retailers with some seeing increases in their liabilities whilst others saw reductions. An additional cost for retailers was the steady rise in the living wage, which increased from £6.70 per hour in 2015 to £8.21 per hour in April 2019. At April 2021, the living wage was £8.91. Retailers have faced additional import costs either passing these on to the consumer or absorbing the extra cost themselves.

1.6 Retailers have also faced the ever-developing market of online shopping which has ensured that fewer people have the need to pay a visit to a store. In 2013, for every £10 spent on retail goods, £1 of this was via online shopping (10%). However, in 2019, this had increased to £1 of every £5 spent (20%). At April 2021, online shopping accounted for £1.50 of every £5 spent (30%). With some retailers now operating at both High Street and Retail Warehouse level, the Retail Warehouse Market has been exposed to these problems. 2018-2021 saw a large number of national retailers enter administration, apply for a revised rent through a Company Voluntary Agreement or cease trading. Vacancy rates on retail parks have risen therefore to 5.9% at Q1 2021; however, vacancy remains low in comparison to shopping centres and the high street. This is in part due to the presence of out-of-town retailers such as bulky goods and grocery operators which were deemed essential and allowed to trade through the COVID pandemic. It is also due to retail parks being considered a safer retailing option, providing shoppers with an outdoor socially distanced drive to retail environment.

1.7 The economic pressures faced have led to opportunities for others. ‘Value operators’ and ‘food operators’ underwent a period of expansion before and during the pandemic and have publicly stated their intention to continue expanding their portfolio in the foreseeable future. This has been achieved by taking occupation of vacant units or working with developers to achieve a presence on new retail warehouse park developments.

1.8 Historically, ‘food operators’ haven’t had a strong presence on retail warehouse parks. The sale of groceries has often been restricted by conditions attached to the A1 planning consent under The Town and Country Planning (Use Classes) Order 1987 (as amended). For a ‘food operator’ to move onto a retail warehouse park, planning permission would normally have been sought for a non-restrictive A1 use, allowing the sale of food. This may be in the form of an application for the lifting of the restriction where the unit was formerly occupied by a ‘non-food operator’, or in the case of a new development, a non-restrictive A1 use being granted from the outset. The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020, and further amendments to the Town and Country Planning (General Permitted Development) (England) Order 2015, retail warehouses fall within Class E which enables them to offer a wide range of retail and lifestyle goods which in turn will attract a wider range of custom. There may still be restrictions on the types of goods sold or the amount of space devoted to certain products (e.g. bulky white goods or food).

1.9 The attractiveness of retail parks as a shopping location is evidenced by the increase of both budget and high end food outlets which have appeared on retail parks in the last few years. Landlords and other retailers now see ‘value operators’ and ‘food operators’ as major drivers of footfall, with both being prepared to enter into 10 to 20-year leases, as opposed to the standard 5-year lease that is becoming more common on the high street.

1.10 As at the AVD of 1st April 2021 COVID was in existence. It was anticipated that the vaccine rollout which commenced in December 2020 would reduce its impact on society.

2. Changes from the last practice note

2.1 There has been no previous Practice Note for Retail Warehouses

3. Ratepayer discussions

3.1 There have been limited discussions with industry representatives.

4. Valuation scheme

4.1 Retail Warehouses should be measured to gross internal area (GIA). The advice provided in Rating Manual Section 4: Part 1: Practice Note 1 – rental adjustment should be followed where the adjustments required to the rent, if any, are explained in detail. The adjusted rent is expected to be analysed adopting the appropriate area (in terms of main space) to produce a rate per m². This will allow comparability with similar properties.

4.2 Retail Warehouses are valued on a comparative basis using rates per square metre derived from local rental evidence. There is sufficient rental evidence available to establish a basis for the standard retail warehouse unit.

When valuing retail warehouses, great care should be taken to compare ‘like-with-like’.

4.3 The valuation scale to be adopted is V1SRETWAR1.

4.4 It is anticipated that a rentals approach using GIA establishes a relationship or pattern in comparable retail warehouses that confirms or underpins a scheme of valuation.

Tenant added supported first floors (mezzanines)

4.5 Valuation advice for tenant added supported first floors in retail warehouses can be found in Rating Manual: section 878 - practice note 1.

Air conditioning

4.6 Air conditioning is not reflected in the basic level of value determined for retail warehouses and should be included as a separate addition. Valuation advice for air conditioning in retail warehouses can be found in Rating Manual Section 878: Practice note 2

4.7 However, in order to establish the appropriate addition for air conditioning, regard must be had to the Supreme Court decision in Iceland Foods Ltd v Berry (Valuation Officer) [2018] UKSC 15 to clarify whether the system is rateable.

Plant and machinery

4.8 The prescribed assumptions under paragraph 2 of the 2000 Regulations include the assumption that any plant or machinery, if it belongs to any class listed in the Schedule to the 2000 Regulations, is assumed to be part of the hereditament in or on which it is situated. Class 2 in the schedule consists of:

“Plant and machinery which is used or intended to be used in connection with services to the hereditament or part of it, other than any such plant or machinery which is in or on the hereditament and is used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes.”

4.9 The Supreme Court in Iceland determined that ‘a trade process is simply a process (in that wide sense) carried on for the purposes of the trade’. Where the services provided by the relevant plant are used ‘mainly or exclusively’ as part of the trade process, they should not be considered rateable. When considering this issue, the Supreme Court comment should not be taken in isolation but must be understood in the context of the whole decision.

4.10 In the case of Iceland, the services provided by an air handling system, used in connection with refrigerated goods at the property, were determined to be classed as part of the ‘manufacturing operations or trade processes’ and therefore not rateable.

Car parking

4.11 Modern purpose-built retail parks are normally served by adequate common car parking facilities and these facilities may be wholly reflected in the rents passing for the retail units. Under these circumstances, no addition to value should be made for parking and no separate entry should be made. Any incremental value arising from the parking being within the same occupation may need to be isolated when comparison is being made with other units without such facilities.

4.12 Care should be taken to identify car parks for which parking charges are made or where there is significant use by other users (such as local offices) in which case, a separate entry in the valuation list may be appropriate. There has been a recent increase in the number of car parks that are managed by private firms that include ANPR with payment machines, limited free stay or mixture of both.

The interface between retail warehouses and large shops

4.13 There is a presence of large units on retail warehouse parks that focus their sales towards items for the home. They are typically larger than other units on a park (ranging from 3,000 m² to 6,000m²) and their external appearance is not of a traditional profile clad retail warehouse, but rather of concrete and glass. All the interiors are well fitted out. Comparison of the rent against both classes in the locality and further afield should be undertaken, as should any restrictive nature of the planning permission for the unit under consideration.

APPENDIX 1

Retail Warehouse Inspection Checklist. The checklist below identifies the information that will need to be gathered in order to properly complete the survey.

RETAIL WAREHOUSES INSPECTION CHECKLIST (GIA) Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.
Occupier
Address
Location Including access, visibility, and where on the park the unit is located
Competition/ comparables Note other occupiers of the park, particularly those in the same parade/close proximity to the subject
Store description Main attributes Stand-alone unit or part of a parade Food store operator or non-food (if a blend, estimate/calculate percentage used for food)? Is it of the same construction as other units on the park or different?
Size (GIA)
Unit of Assessment. ATM, Café or other third party occupation. If any of the space is sublet (another retailer, i.e. coffee shop) note the occupier and the area they occupy. Separate let outs are measured to GIA
Transport Availability of public transport to the retail warehouse
Car Parking Allocated/ communal, open/ covered, number of spaces, staff/ customers, free/ charge made/ refund given
Building External Year built: Year Refurbished: Has the whole retail park been refurbished or just this unit?
Construction Purpose built/ converted Walls: Structural/ non-structural. Finish Floors: Solid/ timber (for tenant added mezzanine floors, see the appropriate revaluation practice note attached to this rating manual section) Ceilings: Finish, suspended, floor to ceiling height
Entrance Sole/ shared, front/ side/ rear
Frontage/ display Construction eg plastic coated profiled steel etc. Glazing (single, double, tinted etc.)
Delivery and Loading Ease of access from loading bay to store
Building Internal Includes retail area, café, storage, offices, staff facilities, plant rooms, regardless of whether access internal or external, cage marshalling where contained within main building envelope, service yards where fully enclosed within main building envelope. Refurbished Standard of fitting out Area of fully enclosed service yard to noted separately
Disabilities
Accommodation Ground Floor Upper floors: Is there a mezzanine floor? If so record construction type and enquire as to whether it was in situ on occupation or a tenant’s addition? How is the upper floor accessed? Lifts & Escalators Lifts: Type manual/ automatic, hoist, goods, passenger, staff/ customers, capacity (in persons and kilogrammes), floors served. What is the upper floor used for? – Retail or mixed use. If mixed measure area of each use: retail, staff facilities, offices, warehouse – use will be value significant.
Extraordinary features
Lighting Natural/ artificial, quality
Customer WCs Extent, quality
Customer restaurant See also unit of assessment above
Services. Photovoltaic Cells (Solar Panels). If installed note location, number, total output in KW, date of commission, and whether the electricity generated is used by the retailer or whether a third party benefits from the feed in tariff. Fire Protection. Inside: Sprinklers, smoke detectors. Outside: Separate tanked supplies and other fire prevention systems. Security. Internal and external CCTV (including numbers of cameras) and other security systems.
Heating Air Conditioning or space heating (age) Cassette or ducted. Purpose. Extent of area covered. Heating. Fuel. System
General remarks Are there are any vacant units on the retail park?
Photographs	Take a comprehensive selection of photographs externally and internally including areas separately let out and upload onto RSA.
Date of survey		Survey by:

Practice note 1: 2017 - tenant added supported first floors in retail warehouses

1. Market appraisal

This Practice Note provides valuation guidance on the treatment of tenant added first floors in retail warehouses for the 2017 Rating Lists (such floors are commonly referred to as ‘mezzanines’). It outlines the steps to be taken when considering such floors and recommends using ‘backstop’ figures where no better evidence or indicators of value are available.

1.1 The Use of Mezzanine Floors

Over time, the design of mezzanine floors reflects the occupier’s corporate style and image. Most modern retail warehouses are built and offered with ‘mezzanines in mind’, allowing occupiers to fit them out with mezzanine floors designed to their own specification. Having said that, mezzanine floors are not yet a universal feature in retail warehouses.

1.2 The Cost of Mezzanine Floors

Mezzanine floors are often part of a wider fitting out of the retail warehouse. It is important that the costs of installation are considered in that context. Whilst the costs of more modular or system built floors can be modest, bespoke, higher quality floors cost more by comparison and are more likely to have high specification mechanical equipment, such as escalators. When examining costs of installation, it is important that all rateable fitting out is considered, such as CCTV, lighting, floor finishes, ceiling finishes, fire protection etc., It forms part of the hereditament and must be included in the assessment.

2. Changes from the Last Practice Note

There is no change in practical terms to the guidance provided in the previous (2010) practice note (as amended during the life of the 2010 lists, most notably in 2013). This 2017 practice note provides valuation guidance on the treatment of tenant added supported first floors (mezzanines) for the 2017 Rating Lists. It outlines the steps to be taken when considering mezzanines and recommends using a range of ‘backstop’ figures as appropriate should no better evidence or indicators of value be available.

3. Ratepayer Discussions

There have been no ratepayer discussions since those resulting in recommendations in 2013. Those recommendations have been carried forward into this note.

4. Valuation Scheme

4.1 General

In most cases, this class of property is valued on the rental basis. When considering evidence in arriving at values to be placed on any mezzanine, it is important to follow the guidance found in the rental adjustment practice note at Section 4: Part 1: Rental Adjustment Practice Note 1, 2017, Part 14 - Improvements.

Mezzanine floors in retail warehouses are constructed to varying standards of quality and finish. Usually they are tenants’ additions or improvements and frequently built over large areas of the available ground floor space. The approaches and figures suggested below for the valuation of mezzanines reflect the restricted headroom of the ground floor.

This note provides guidance regarding the valuation of mezzanine sales, storage and office areas within retail warehouses. This note does not deal with purpose built floors in retail warehouses; nor does it cover mezzanines located in buildings used other than as retail warehouses.

In the absence of better indicators of value, ‘backstop’ figures are recommended for sales mezzanines of a defined specification. These figures cater for mezzanines installed with value significant features such as escalators, large passenger lifts or wide spans between columns.

In some instances, it may be necessary to obtain full costs of installation of the mezzanine and use them to derive a virtual rent on a case-by-case basis. Any such details of costs obtained for mezzanines should also be copied to the Head of the Commercial Team within the National Valuation Unit.

Whilst mezzanine floors subsequently installed by landlords as part of the initial letting arrangements for a particular tenant are covered by this note, floors that are built into the property as part of the original construction are not.

4.2 Terms and definitions

The following terms and their definitions should assist when considering this note:

Mezzanine – Tenant Added First Floor in a Retail Warehouse, defined as an inserted partial storey between two stories, or an inserted intermediate floor or floors within what would otherwise be a single storey hereditament. This may include small block built floors but the fundamental difference between mezzanine and purpose built floors is that the former can be readily removed without affecting the structural integrity of the retail warehouse.
Virtual Rent – Arrived at by amortising the individual capital cost of providing the mezzanine floor so as to derive an annual equivalent that contributes to the rent an occupier would pay: a ‘virtual rent’.
Base Price – The starting price for a specified type of sales mezzanine, before any additions or adjustments are made for mechanical equipment.
Backstop figure – Proposed £/m2 recommended in the absence of better indicators of value.
Travelator – Moving walkway (similar to those seen at airports) that enables people, trolleys and buggies etc. to access the mezzanine floor. Expected to be found in pairs.
Hoists – Rudimentary one or two person lift, may be fully open or within its own shaft, but will not have a fully enclosed internal caisson or compartment. More likely to be located at the edge of average quality mezzanines.
Purpose Built Floors - Floors that are built into the property as part of the original construction.

4.3 Outline of Valuation Approach

In making an appropriate addition for mezzanines, an outline of the recommended approach is:

Firstly, to seek rents which already include the value of the mezzanine(s), either the rent on the subject property or comparable rents elsewhere.
Such rents should be analysed to quantify the effect of mezzanine(s) on the rental market being considered.
Comparable evidence should be considered, and this includes additions previously accepted or agreed in respect of similarly specified mezzanine floors.
Where no comparable rental or assessment evidence can be found, an addition generally will be appropriate, ideally calculated using the cost of providing the actual mezzanine(s) installed in the subject property.
Once the actual cost of provision is established, this will be converted to an annual equivalent.
A ‘backstop’ approach is provided for use in the absence of any more reliable evidence.
The value of mezzanine floors is only one of several value significant factors affecting the hereditament, and as such, should not be treated as a separate issue.

The above outline approach is in line with the decisions in Lotus & Delta v Culverwell (VO) LT [1976] RA 141, Edma (Jewellers) Ltd v Moore (VO) LT [1975] RA 343, and Dorothy Perkins v Casey (VO) LT [1994] RA 391.

Those cases provide useful guidance on the hierarchy of evidence to be considered when seeking to quantify the value of improvements. Regard to cost should only be made as a last resort, in the absence of better, more direct, evidence of rental values.

For more information on the approach to rental adjustments and improvements, please refer to Section 4: Part 1: Rental Adjustment Practice Note 1, 2017, Part 14 - Improvements.

It should be noted that the Lands Tribunal in Rogers (VO) v Evans [1985] LT 2 EGLR 217; 275 EG 727-728; (Estates Gazette 24 August 1985) decided that a tenant added mezzanine floor is not plant and machinery, but part of the setting and adds value as such. In making his decision, WH Rees FRICS said “I come to the conclusion, therefore … that the mezzanine floor is part of the building and is rateable. I have no doubt that it adds to the value of the building as the occupier originally took it, particularly for his purposes.”

4.4 Availability of Rental Evidence

Rental evidence of retail warehouses with a mezzanine installed prior to the Antecedent Valuation Date (AVD) of 1 April 2015 is expected to be available; they are no longer such a new concept and units are changing hands with mezzanines installed. Such evidence must be carefully considered to establish if the value of the mezzanine can be ascertained.

Units with mezzanine floors offered for assignment or subletting commonly give the alternative option of the added first floor being removed by the outgoing tenant prior to occupation. This suggests a market preference for a unit ‘clear’ of the mezzanine. Where a tenant wants a mezzanine added at the outset, sometimes the landlord is willing to install it at cost to the tenant, either at a capital cost added to the rent; alternatively the landlord may add a mezzanine to the tenant’s specification as part of an inducement package. However, the fact that some occupiers are prepared to pay for the cost of improvements, either directly or through increased rent, shows they are of value to those tenants. In such circumstances, care must be taken to establish what the rent includes for the mezzanine and how it was calculated.

Where occupiers are required to apply for planning consent when they wish to install or insert a mezzanine floor in an existing retail warehouse, this may result in a reluctance to remove existing mezzanines prior to any re-letting and result in more relevant rental evidence emerging.

It is hoped that further rental evidence of mezzanine floors will become available. Rental evidence should always be the first step in establishing the value of mezzanine floors in any locality, but care will be needed where trading patterns have changed since the AVD. Any further evidence of lettings with the benefit of mezzanine floors, either installed by a landlord or added by a previous tenant, should be verified and details sent to the Head of Commercial Team within the National Valuation Unit for information.

4.5 Availability of Comparable evidence

Assessments in compiled rating lists will carry some evidential weight, since they embody the patterns of value adopted by the valuation officer at the revaluation. They will provide stronger evidence on which to rely once they have been generally tested and accepted in the appeal process. Additions made for relatively small elements of valuations, such as mezzanine floors, may not be fully tested in the context of the valuation for the whole hereditament, even if the rateable values form a body of agreement. It will often be open to question whether a ‘tone of the list’ for elements of valuations has settled in such instances.

In the absence of evidence, regard may be had to relative levels of value determined in the previous list. Very careful judgement will be required to establish how much weight, if any, should be attached to such evidence. However, it may be possible to make some broad observations. For example, given a situation where ground floor values in a particular locality have risen from one AVD to the next, it may be considered a reasonable expectation that the value in £/m2 added by the mezzanine floor should not, however determined, be any less in £/m2 than the corresponding value fairly and openly determined in the previous list.

It is important to acknowledge that the rateability of mezzanine storage has been the subject of litigation in the Valuation Tribunal. Toys R Us v. Penny (VO) VT 1999, which was further appealed to the Lands Tribunal but withdrawn by a Lands Tribunal consent order, established the rateability of mezzanine storage and decided that significant value is added by the provision of mezzanine floors, not just a nominal amount. More recent Valuation Tribunal decisions may emerge; however, these would be expected to deal with valuation issues, and be determined on the particular facts of the case under consideration. Details of such decisions should be sent to the Head of Commercial, Leisure and Civics Team within the National Valuation Unit for consideration.

4.6 Approach in the Absence of Reliable Rental Evidence and Actual Costs

If reliable rental evidence is not available to show the value of the mezzanine(s), and comparable assessment evidence is not available, the annual rental equivalent of these improvements can be found based on cost. For the 2017 Revaluation, an annual equivalent approach is considered to be the most appropriate.

The costs actually incurred by the retailer should be used wherever possible. However, it is acknowledged that the recommendation for VOs to amortise costs as part of a virtual rent approach to valuation in respect of mezzanines is not accepted by ratepayers and their advisors.

4.7 Making Adjustments to the backstop additions for Mezzanine Floors in the Absence of Reliable Rental Evidence and Actual Costs

In the absence of reliable rental evidence and actual costs, additions for the majority of mezzanine installations should be catered for below. Adjustments to the proposed additions are found in the context of the particular floor type being considered. It is therefore important to use the figures alongside the descriptions and considerations provided in the accompanying text.

4.8 Mezzanine Sales Floors

Descriptions of floor quality and mechanical equipment in respect of specific types and quality of sales mezzanines are provided in this paragraph. Corresponding figures are recommended in the table below in the absence of the actual costs of the floors in question. It is important to make sure that any description and ‘backstop’ figure adopted is matched appropriately for the quality of the subject mezzanine floor. Any mezzanine floor specification that falls outside the descriptions below may require further investigation or costings.

4.8.1 Lifts and Hoists

All mezzanine sales floors must comply with the Disability Discrimination Act 2005 (DDA) (as amended) and access provided to them. Almost always a lift or hoist is present. The backstop addition increases where either the lift has a capacity of 13 persons or more, or where there are two smaller lifts available for customers’ use (e.g. two 6 person lifts). The addition to the sales area for two lifts does not apply where the second lift is clearly a storage lift dedicated to the rear partitioned off storage area and never used by the public.

4.8.2 Size considerations – General.

The majority of sales floors are anticipated to be in a size range between 500m2 and 1,250m2 of dedicated sales area. Outside this range, a further adjustment may be necessary to alter the £/m2 to reflect the spread of the fixed cost items over smaller or larger floor areas. In particular, the ‘best quality’ floors tend to have more numerous and costly fixed items such as escalators and larger lifts.

In making such adjustments, care should be taken at the range boundaries of 500m2 and 1,250m2 to avoid smaller floors having higher additions than larger floors and larger floors having lower overall additions than smaller floors. A common sense view should be taken to avoid such illogical outcomes; it is a matter of judgement, having regard to the size of the particular floor and the numbers of escalators/lifts and other fixed cost items present.

Where mezzanine floors are partitioned off into sales, storage and offices, care should be taken when making adjustments to the backstop figures for size, to base any size adjustment on the area dedicated to sales only. If the quality of the floor is such that the storage and office portions have lower values than the sales area, it is not appropriate for area of the whole floor to be used as the start point for considering a further adjustment; only the area of the portion used for sales should be considered when contemplating a size adjustment.

4.8.3 Size considerations – smaller floors

Application of the ‘backstop’ figures detailed below should be limited to retail warehouses where the additional tenant added first floor sales space covers more than 500m2 (or at least 50%, if smaller) of the available total ground floor area. The figures do not therefore readily apply to small mezzanine sales floors below 500m2 where it may be necessary to increase the £/m2 by up to 10% to reflect the spread of the fixed cost items over a smaller floor area; the actual adjustment being dependent on the proportions of the elements included in the particular floor. For example: the extent and type of balustrade, types and quality of access, floor and ceiling finishes, whether stairs lifts or escalators, and quality of fixtures and fittings.

4.8.4 Size considerations – larger floors

For mezzanine sales floors between 1,250m2 and 1,750m2, it may be necessary to reduce the £/m2 by up to 10% to reflect the spread of the fixed cost items over a larger floor area. The actual percentage should reflect the relationship between amount of floor area and the relative cost of the fixed items. For floors between 1,251m2 and 1,375m2, depending on the percentage adjustment, it is important to avoid a larger floor having a lower addition than a floor of 1,250m2. Care must be taken to ensure this does not happen.

For mezzanine sales floors over 1,750m2, a reduction of 10% is considered appropriate. Should a larger adjustment be sought, it will be necessary for the Valuation Officer to be provided with further details, such as a properly authorised occupier’s schedule of the actual costs. Evidence of ‘economies of scale’ will be needed to show a more significant adjustment when determining the addition to make for the mezzanine floor.

4.8.5. Mezzanine Sales Floor Quality

See below for descriptions of various mezzanine sales floor qualities. The vast majority of mezzanine sales floors fall within Average, Above Average and Best. In rare instances floors are below average, and these have been catered for below, but are in reality little better than storage mezzanines.

Poor quality sales mezzanine: SRF (Supported Retail Floor) – Use for poor quality sales mezzanines that are of extremely light construction, no lift, no finishes to the floor or ceiling underneath, no additional lighting other than already present in the premises, restricted head height and a utilitarian feel.
Below average quality sales mezzanine: SFF (First Floor Sales) - Use for poor quality sales mezzanines that are of light construction, no lift, no ceiling finishes underneath or above the floor, and a utilitarian feel with externally fitted strip lighting. Noticeable pillars and the floor is lightweight. The visual effect underneath the floor is that of obstructed space. May have basic plastic type floor finishes on the decking.
Average quality sales mezzanine: SF1 - Use for average quality sales mezzanines. Whilst sales floors can be built to a much higher quality, only exceptionally would sales floors be poorer than this. Comprises a timber floor, supported by timber or structural steel work. Small spans with noticeable pillars. The visual effect underneath the floor is that of obstructed space. Accessed by metal or timber staircase. Ceilings unfinished above the floor. Ceilings below the floor, either unfinished or having an ‘office style’ lightweight tile suspended ceiling. Will have adequate fluorescent strip lighting and security/fire detectors. May have simple glass or chrome balustrade along a straight floor edge with simple 90 degree turns where necessary. Typically no lifts but will almost certainly have a hoist of some kind.
Above average quality sales mezzanine: SF2 - Use for above average quality sales mezzanines. Usually a timber floor, supported by structural steel work. Fully fitted to a good standard, the floor probably has ‘office style’ suspended ceilings above and almost always a suspended ceiling beneath, which may include some feature lighting. May have glass or chrome high quality balustrade, which could follow a curved or multi-angled floor edge. Often has ‘generously appointed’ staircase(s), sometimes with half landings leading to separate flights. Small span floors with noticeable supporting pillars. The visual effect underneath the floor is that of obstructed space to a similar extent to that of the average quality floor. Often, but not always, served by passenger or disabled lift and possibly a goods hoist.
Typically best quality sales mezzanine, or those with specific features: SF3 to SF9 - Use for currently best quality sales mezzanines at the material day, typically present in ‘open A1’ retail parks. Will have, cement screed or (in exceptional circumstances) reinforced concrete flooring, timber supported by encased structural steel work. Fully fitted to a high standard with quality suspended ceilings and high quality integral lighting both above and beneath the floors; this will often appear similar to that found in prime town centre retail positions. Where present in the unit, will normally have air-handling/conditioning systems integrated into the ceiling above and below the floor. Often have glass or chrome high quality balustrade (where present) and ‘generously appointed’ staircase(s). Wider span floors with few pillars that will tend to be in single rows down the centre of a ‘typical’ unit with corresponding supports against the side walls. The visual effect is one of clear space and good height. Often, but not always, served by escalator(s) and a goods hoist. Will almost invariably have an enclosed lift, and may even have two lifts.

A Mezzanine floor photo gallery is available showing examples of Average, Above Average and Best floors. This can be accessed by clicking here.

4.8.6 Recommended Backstop Figures

The table below can be used to determine a backstop figure for ‘average’, ‘above average’ and ‘best’ quality floors. The final price adopted will depend on the range of features and quality of the elements that form part of the tenant added sales floor.

Air conditioning (AC) is NOT included in any of the figures shown below. Where an addition is to be made for air conditioning, guidance is located in Rating manual Section 6, Part 3, section 878, PN2, 2017, Air Conditioning in Retail Warehouses

For the avoidance of doubt, where there is AC benefitting the mezzanine floor, the appropriate area must be dealt with in addition to the area benefitting the ground floor. For example, a ground floor sales area of 2,000m2, and a mezzanine of 1,000m2 would result in 3,000m2 attracting a separate addition as specified in the advice mentioned above.

	*FINISHES:	Average		Above Average		Best at the Antecedent Valuation Date
ESC-ALA-TOR- (S)***	Lifts Floor Construction	12 person or less	13 person or more, or 2 smaller passenger lifts**	12 person or less	13 person or more, or 2 smaller passenger lifts**	12 person or less	13 person or more, or 2 small passenger lifts**
0	Timber Floors	SF1 £25	SF2 £30	SF2 £30	SF3 £35	SF3 £35	SF4 £40

	Concrete Floors	-	-	-	-	SF6 £50	SF7 £55

1	Timber Floors	SF2 £30	SF3 £35	SF3 £35	SF4 £40	SF4 £40	SF5 £45

	Concrete Floors	-	-	-	-	SF7 £55	SF8 £60

2	Timber Floors	SF3 £35	SF4 £40	SF4 £40	SF5 £45	SF5 £45	SF6 £50

	Concrete Floors	-	-	-	-	SF8 £60	SF9 £65

*Air Conditioning is not included in the figures in this table and must be added as appropriate based on the current advice in Rating manual Section 6, Part 3, Section 878.

** Where 2 lifts of 13 person capacity each (or more) are present, a further addition of £5/m2 should be made.

*** Where present, travelators would attract a further addition of £10/m2 each.

4.9 Mezzanine Storage Floors

Application of the figures detailed below should be limited to retail warehouses where the additional tenant added first floor storage space covers no more than 750m2 of the available total ground floor area. This does not therefore apply to very large tenant added first floor storage areas, which are likely to cost less per m2.

Figures in respect of specific types of ‘average’ quality and ‘above average’ quality storage floors are suggested in the absence of the actual costs. It is important to make sure specifications for the ‘backstop’ figure adopted is matched appropriately for the quality of the subject mezzanine storage floor. Any mezzanine floor specification that falls outside the descriptions below may require further investigation or costings.

Average quality storage floor: £15/m2: SSF (Supported Storage Floor) – Use for average quality storage floors. This is the standard floor quality. Comprises timber floor; supported by steel work spanning short centres, often designed to support an integral racking system underneath. This type of floor typically has storage below, being situated at the rear and sometimes along the sides of the unit in a ‘U’ shape. Accessed by metal or timber staircase. No finishes above and below apart from lighting and security/fire detectors. May have restricted headroom. Typically no lifts but hoists or conveyor belts may be evident.
Above average quality storage floor: £20/m2: RSF (First Floor Stores - Retail) - Use for above average quality storage floors. Timber or concrete section floor, supported by encased structural steel work spanning wider centres than would apply to the average floor specified above. Fully fitted to a high standard with suspended ceilings beneath the floors. This type of floor typically stretches over the ground floor sales area and has a goods lift or hoist with broad steel staircase(s).

4.10 Mezzanine Office Floors

For small mezzanine floors wholly dedicated to office accommodation as a proportion of the main space price (£/m2), rental or comparable assessment evidence is sometimes available based on an analysis of comparable sized purpose built floors in retail warehouses. Such small office floors are normally dealt with at 100% of the main space price and small mezzanines could be dealt with in the same way. This would also include small block built office or amenity floors, typically found in older generations of retail warehouses.

Where a larger mezzanine floor (of a size or coverage normally associated with retail space) is wholly dedicated to offices, further guidance should be sought from the Head of Commercial, Leisure and Civics Team within the National Valuation Unit.

However, where office accommodation is partitioned off from a sales mezzanine floor, it is appropriate to consider an addition based on approach taken in respect of the sales floor element. Therefore, depending on the quality of the finishes of the office space, it is anticipated the addition for the office floor will be at the base price of the particular type of sales floor installed. That means between £25.00/m2 and £35.00/m2.

If the office accommodation is partitioned from a storage mezzanine floor, and no sales space is provided by the floor, its value is anticipated to be between £20.00/m2 and £30.00/m2 depending on quality of finish.

There are no Other Addition (OA) codes for offices in retail warehouses; for small office floors it is anticipated they are dealt with at line entry level using an Accommodation Use Code (AUC). In instances where it is required to show all or part of a large mezzanine floor in the valuation, an appropriate OA code for sales floors should be used and the description overwritten as appropriate.

4.11 Floors partitioned into a mixture of uses

Whilst the floor itself is often of the same basic construction, the costs of finishing different elements will vary and the fixed cost items dedicated to each element will often be commensurate with the resultant size of the sales, storage or office element. It is therefore acceptable for caseworkers to consider applying different prices to sales, storage and office elements of mezzanine floors.

Where mezzanine floors are partitioned off into sales, storage and offices, care should be taken when making size adjustments to the backstop figures to ensure any size adjustment on the area is based on the sales area only (see paragraph 4.8.2. above). If the quality of the floor is such that the storage and office portions have lower values than the sales area, it follows that it is not appropriate to use the overall area of the mezzanine floor as the start point for considering an adjustment; only the area of the portion used as sales should be considered.

Furthermore, where the first floor is: * of timber construction, * being dealt with by reference to the base price only (there are no escalators, etc.), * mainly dedicated to sales, * partitioned into storage at the rear, and * essentially part of the same structure, then

the appropriate value attributed to the sales element should be considered as a ‘start-point’ for the storage part. It may still be appropriate to adjust the price attributed to the storage part downwards to reflect reduced quality of finish but any adjustment is expected to be slight in such instances, bearing in mind the lack of fixed price items present, such as escalators.

Where the first floor has fixed cost items present (such as escalators) and mainly dedicated to sales and has a storage element to the rear, but is essentially part of the same structure, then the appropriate value attributed to the sales element should not be adopted for the storage part, but storage prices should be considered. The price adopted depends on the difference in quality between the sales, storage and offices elements of the mezzanine floor, and is therefore anticipated to range between £15.00/m2 and £35.00/m2.

4.12 Other Valuation Considerations

When considering or checking costs of installation, the following list (not exhaustive) of features may be useful:

Details of supporting steelwork (size, type, spacing’s between supports and how the supports are covered/finished)
Foundations and bases for steel frame stanchions; are they bolted to ground floor, or cast into foundations
Bracing - is there provision of full height cross bracing for lateral stability?
Any incidental work to existing ground floor
Height of mezzanine above ground floor
Changes to the existing roof members where necessary to accommodate the new floor
Decking and supports to form new floor (timber or concrete beam, or concrete cast in situ)
Finishes /casings around steel columns
Partition between Sales and Storage areas (Quality, Construction, Finishes, Ironmongery, Doors and glazing – extent and fire resistance)
Details of any other partitions
External fire escape doors complete with all electronic and other security controls
Internal fire resisting doors with access security controls (e.g. Sales/Storage access)
Fire Protection. Typically, if the mezzanine occupies 50% or more of the ground floor area then it may need to be fire protected, if the mezzanine floor is to be used for offices or has people working on it, it should be fire protected, if the size of the platform is more than 20 metres in either direction, it should be fire protected
Suspended ceilings to underside of mezzanine and to first floor area. In particular, type, integral lighting, feature lighting, tile/grid type, or ceiling finish
Floor finish and screed to sales and/or storage areas on both floors
Balustrade construction /materials to front (and sides and stairs as appropriate) of mezzanine area. Note the shape and style of floor edge followed by the balustrade.
Base plinths for display areas
Creation/enhancement of staff amenity area, including partitions, WCs, rest rooms etc.
Passenger lift in sales area – number of passengers and weight limits. Is there a lift pit?
Goods lift in storage area – weight limits. Is there a lift pit?
Escalators/travelators/staircases for public access to first floor – Length and width including specification plate details if available
Secondary staircase for staff usage in storage area
External/Internal fire escape staircase(s) together with any accommodation works
Provision of heating/air conditioning to ground floor and new floor levels
Electrical installation including lighting type and grid layout, power outlets and emergency lighting to both ground and new floor levels
Smoke detectors, fire alarms, Sprinklers, Public address (PA) systems and closed circuit television (CCTV) systems
Additions for Preliminaries, site overheads, site supervision, project management, etc.
Details of professional fees/LA Building Regulations, etc. incurred
Building Regulations - Any project will require building regulations approval which will include the proposed project in order to annotate suitable smoke detection, fire alarm, emergency lighting, means of escape, a design access statement illustrating compliance with Building Regulations Part M and the Disabled Discrimination Act (with particular relevance to address the issues in provision of a disabled platform lift or to propose the negation of this requirement, instead providing a Part M ambulant person stair).

4.12.1 Where actual costs are obtained:

The ‘backstop’ figures detailed above must be used with care: where full costs are obtained and properly verified, they may point to addition either above or below that recommended. Any costs obtained should be carefully considered to ensure that all elements are present, including professional fees and the installation costs of certain elements (such as escalators and fire protection systems). Where necessary, assistance is available from VOA Building Surveyors. Should costs require amortisation as part of a rental adjustment, a tenants’ improvements calculator is attached below.

4.12.2 Rate used for amortisation:

When amortising the cost of tenants’ improvements, advice contained in the rental adjustment practice note at Rating Manual Section 4: Part 1: PN1 2017: Parts 14, 15 and 16 should be followed. Generally 6% is considered appropriate for retail, but there may be reasons to adjust this.

4.12.3 Term used for amortisation:

When considering the term over which to amortise the cost of tenants’ improvements, advice contained in Rating Manual Section 4: Part 1: 17 should be followed. The anticipated life of the item may vary depending on its complexity, build quality and specification. Similarly, other issues need to be considered, such as likely length of occupation and/or lease, together with the impact of Landlord and Tenant legislation.

4.12.4 Practical Matters:

When using the Rating Support Application (RSA), it is preferable to deal with ‘Step 3’ additions in respect of mezzanine floors using ‘other additions’ (OA). Using the following OA codes as recommended below should automatically produce certain figures in respect of mezzanine floors as follows:

Sales Floor OA Code	RSA Default Description	Backstop
SRF	(Supported Retail Floor)	£15.00
SFF	(First Floor Sales)	£20.00
SF1	(Mezzanine Floor)	£25.00
SF2	(Mezzanine Floor)	£30.00
SF3	(Mezzanine Floor)	£35.00
SF4	(Mezzanine Floor)	£40.00
SF5	(Mezzanine Floor)	£45.00
SF6	(Mezzanine Floor)	£50.00
SF7	(Mezzanine Floor)	£55.00
SF8	(Mezzanine Floor)	£60.00
SF9	(Mezzanine Floor)	£65.00

Storage Floor Code	RSA Default Description	Backstop
RSF	(First Floor Stores in a Retail Unit)	£20.00
SSF	(Supported Storage Floor)	£15.00

Other OA Code	RSA Default Description	Backstop
AIR	Air Conditioning	£4.00

However, when either using ‘backstop’ figures for mezzanine floors that do not correspond to the figures shown in the table above, or if applying a figure derived from the cost of installation, it is preferable to deal with the mezzanine floor using the OA code that produces the closest price, overwriting the ‘backstop’ price as appropriate.

It is also essential that a note be made in the remarks field of the valuation, specifying the price added for the mezzanine floor and why the particular price has been used.

4.13 Notes and General Observations

Emphasis should be placed on the merits of the step-by-step approach to the valuation of these mezzanine floor areas as detailed in the Lotus and Dorothy Perkins decisions. These mezzanine floors are rateable tenants’ improvements, and should be valued as such. The above approach allows fully for the adoption of a scheme based on percentage of value as evidenced by rental or comparable evidence where available. If the rental market develops, then the reliance on costs or backstop figures will diminish.

The above approach provides a way to achieve consistency when tackling mezzanine floors, based on established principles and practice.

Practice Note 2: 2017 - Air conditioning in retail warehouses

1. Market Appraisal

1.1 Introduction

The term ‘air conditioning’ covers a variety of functions ranging from merely cooling and re-circulating air, to replacing, comfort heating and then fully conditioning it. This is achieved either by the use of cassettes, an air handling Unit (AHU) as part of a ducted air handling system (AHS).

Air conditioning in retail warehouses is a relatively common feature and designed properly will enhance the retail setting, providing a controlled environment. It will support the business of retailing, being conducive to staff and customer comfort.

1.2 The market for Air Conditioning Systems

In recent years, the costs and design of air conditioning cassettes has allowed air conditioned retail space to be within the grasp of many retailers. Having said that, it is not yet a universal feature in retail warehouses. Corporate high street chains often have a ‘policy’ that means all retail outlets in the portfolio have air conditioning or handling systems are installed irrespective of location and the prevailing outside weather conditions. This results in a tendency for bespoke AHS being prevalent in retail parks with open A1 planning permission. Cassette based systems feature in all types of retail premises, including retail warehouses. Ducted systems lend themselves to larger premises, but there is no ‘hard and fast’ rule; in practice, a variety of systems are installed in a variety of premises.

1.3 The Phasing Out of R22 Refrigerant

From 2015, it is illegal to put Hydrochlorofluorocarbons (HCFCs), including the ozone-depleting refrigerant gas R22, in refrigeration, heat pump and air conditioning (AC) systems. R22 is commonly used in AC systems pre-dating 2004 and so its ban is likely to have an effect on retailers with air-conditioning systems of that vintage.

Following EU Regulation 2037/2000 on ozone depleting substances (ODS), R22 has not been legal for use in new AC equipment since 2004. Since at least 2000, AC manufacturers and users have known about the impending bans of new (or ‘virgin’) R22 in 2000, and ‘recycled’ R22 in 2015.

In 2010, existing AC equipment became affected. The ODS Regulation imposed a ban in all EU Member States against the use of new R22 to maintain existing AC equipment. Since then only recycled R22 obtained from decommissioned AC equipment or reclaimed R22 can be used. Such recycled or reclaimed R22 is becoming increasingly scarce and expensive.

From 2015, AC systems will not be able to be topped up with any R22, whether virgin, recycled or reclaimed. There will be three options for operators of such AC systems:

Option 1: Run the system with its existing R22 fluid until it fails. This is a ‘hope for the best’ solution, but might be a temptation for retailers with AC systems in older retail parks and retail warehouse locations,

Option 2: Replace the existing system with completely new AC equipment,

Option 3: Use an alternative modern refrigerant to top them up. This may involve replacing parts of the existing AC system.

The occupier will have to consider the following when choosing which option: * the age of the current AC system; * the efficiency of the system; * leakage problems; * whether alternative refrigerants are compatible; * cost; * efficiency and availability of modern refrigerants, and * equipment manufacturers’ advice about using modern refrigerants.

Arguably, having had a 15 year ‘lead-in’ to prepare for this change, the retail rental market should have anticipated this change and rents will reflect any uncertainties at the relevant dates for the 2017 Revaluation. There will always be some AC users who are ‘caught out’ when the R22 supplies are no longer available, but it is reasonable to suppose retailers will have anticipated the change over the last 15 years and taken action to prepare for it.

However, if at the material day the AC is not working because the R22 has run out and no modifications have been made to make the system work with another refrigerant, case workers may be faced with proposals to reduce the rateable value. Hypothetically speaking, the landlord is assumed to have provided the system and if it is a ‘repair’ issue, the AC is therefore deemed to be in good repair. If it is considered a renewal of the AC system is required, it is considered that the landlord would ordinarily consider it economic to make the expenditure based on the value of the hereditament.

In other words, a reduction in RV is not appropriate where an AC system is not operating due to the lack of availability of R22 refrigerant generally; neither is it appropriate if the system is not working due to refrigerant loss.

2. Changes from The Last Practice Note

There is no change in practical terms to the guidance provided in the 2010 practice note. This practice note provides valuation guidance on the treatment of air conditioning in retail warehouses for the 2017 Rating Lists. It outlines the steps to be taken when considering air conditioning systems and recommends using £4.00/m² over the area effectively air conditioned should no better evidence or indicators of value be available.

3. Ratepayer Discussions

There have been no ratepayer discussions.

4. Valuation Scheme

4.1 Outline of Valuation Approach

In making an appropriate addition for air conditioning the recommended approach is:

Firstly, to seek rents which already include the value of air conditioning, either the rent on the subject property or comparable rents elsewhere.
Such rents should be adjusted and analysed to quantify the effect of air conditioning on the rental market being considered.
Comparable assessment evidence should be considered, and this includes additions previously accepted or agreed in respect of similarly specified air conditioning systems.
Where no comparable rental or assessment evidence can be found, an addition generally will be appropriate, ideally calculated using the cost of providing the actual system installed in the subject property.
Once the actual cost of provision is established, this should be converted to an annual equivalent.
In the absence of any more reliable evidence, a backstop of £4.00/m² is recommended.
The value of air conditioning is only one of several value significant factors affecting the hereditament, and as such, should not be treated as a separate issue.

For more information on the approach to improvements when making rental adjustments, refer to Section 4: Part 1: Rental Adjustment Practice Note 1, 2017, Part 14 - Improvements.

4.2 Annual Value of Air Conditioning Systems

Wherever possible, additions for air conditioning should be based on those rents which already include the value of air conditioning.

If reliable rental evidence is not available to show the value of air conditioning, and comparable assessment evidence is not available, the annual rental equivalent of these improvements will need to be found based on cost. For the 2017 Revaluation, an annual equivalent approach is considered to be the most appropriate.

The costs actually incurred by the retailer should be used wherever possible. However, it is acknowledged that the recommendation for VOs to amortise costs as part of a virtual rent approach to valuation in respect of air conditioning is not accepted by ratepayers and their advisors.

The Upper Tribunal in Berry (VO) v Iceland Foods Ltd [2015] UT(LC) RA 201 (at paragraphs 99 to 101) decided the statutory decapitalisation rate ought to be used and applied it to the costs to arrive at a decapitalised figure. The members went further and determined that the landlord would be in a stronger negotiating position and suggested the resultant figure would in all likelihood be higher. The Berry decision places the use of the statutory decapitalisation rate in context, being one consideration in a series of steps to be taken to arrive at a reasonable uplift for the benefit of air conditioning systems in retail warehouses.

4.3 Approach in the Absence of Reliable Rental Evidence and Actual Costs

Where there is no assistance derived from comparable rental and/or assessment evidence, and the costs actually incurred have not been provided or obtained, only a very general indication can be given as to the addition that should be made.

Bearing in mind that details of the actual system are not known, the type of system envisaged for the purposes of this paragraph comprises a ducted system dealing with the floor space in an adequate manner.

However, it is recognised that there are increasing examples of basic cassette systems providing heating/cooling of air with moisture removal and air circulation to just a portion of the space within the retail warehouse (e.g. a tenant added first floor, or ‘mezzanine’).

Where the air conditioning is installed as part of the fitting out and includes a tenant inserted supported first floor (or mezzanine), it is important to remember that heating and cooling costs are no longer expected to be included in the mezzanine floor price, described in Paragraph 4 of the relevant 2017 Practice Note on inserted first floors (RM5:878:2017:PN1). When making an addition for air conditioning, the area adopted in the ‘Other Addition’ (or ‘OA’) part of the valuation is expected to show the total relevant area of both mezzanine and ground floors benefitting from the air conditioning in the Retail Warehouse.

To assist in making those 2017 valuations where no better indicators of value are forthcoming, it is recommended that in the absence of any better indicators of value, the backstop position is £4.00/m2, and this should be assigned to the RSA ‘AIR’ code in respect of the appropriate ‘Other Addition’ or ‘OA’ table.

However, there are certain practical considerations in respect of the distinctions between ducted and cassette systems and these are outlined below.

4.3.1 Ducted System in any type of Retail Warehouse

Generally, for a tenant installed ducted system with the same specifications as detailed in paragraph 4.4 below, £4.00/m2 may be used. This figure is based on providing a system designed to properly condition the air in respect of just the retail area concerned. It is a backstop price for a ducted system dealing with a particular retail space, expressed in £/m2 terms.

In practice, it is reasonable to assume that ducted systems will be bespoke and therefore properly specified to deal effectively with the given volume to be air conditioned, especially considering that the figures in this section are used in the absence of anything better. Therefore, it is not envisaged that this type of system will be over specified or under specified and the whole area benefiting from the ducted system should be taken as air conditioned.

4.3.2 Air Conditioning Systems in Retail Units on ‘Open A1’ Retail Parks

‘Open A1’ retail parks have large, typically glass fronted ‘sheds’, attractive to national high street retailers such as Next and M&S. The units are typically fitted to a standard, producing the same retail environment one would expect to find in a high street shop. These may have cassette or ducted systems air conditioning systems.

Generally, for a modern cassette or ducted system with the same specifications as detailed in paragraph 4.4 below, £4.00/m2 may also be used. This figure is based on providing a system designed to condition the air in respect of the retail area concerned.

Due to the nature of the retailers concerned, once fitted, it is envisaged that air conditioning systems in such units will be well able to deal with all the retail space in the unit and, if anything, more likely to be over than under specified. Irrespective of the nature and quality of tenants’ improvements in these units such as floors and finishes etc., where no better evidence is forthcoming an addition for air conditioning is appropriate in all cases.

If costs are ascertained in any particular case, adjustments should be made depending on the details of the actual systems concerned. However, it follows that the more the details that are known about any particular system, in particular the costs of installation, the more likely a specific annual equivalent could be ascertained as detailed in the paragraphs above.

4.3.3 Cassette Systems in Bulky Goods Retail Warehouses (or ‘Sheds’)

Retail warehouses that cater for bulk goods, electrical and furniture occupiers (sometimes referred to as ‘sheds’) are fitted in a manner commensurate with that use, and that may include a cassette based air conditioning system.

Generally, for a modern cassette system with the same specifications as detailed in paragraph 4.4 below, £4.00/m2 may be used. This figure is based on providing a cassette system designed to condition the air in respect of just the retail area concerned.

It is not envisaged that a cassette system in a more traditional retail ‘shed’ will be over-specified; it is considered more likely to present a system attempting to deal with a smaller proportion of the given retail floor space, such as a mezzanine floor. In such instances, an appropriate proportion of the retail area should be adopted, this being the area of the ‘shed’ that it is reasonable to suppose would benefit from the system.

Once costs are ascertained in any particular case, adjustments should be made depending on the details of the actual systems concerned. However, it follows that the more the details that are known about any particular system, in particular the costs of installation, the more likely a specific virtual rent could be ascertained as detailed above.

4.4 Determining the specification of the system

The way that some retail warehouses are used may have an effect on costs of installation, particularly where this involves heat-generating equipment. Each air handling system is likely to have been designed to meet the individual property’s physical characteristics and the tenant’s occupational needs.

4.4.1 Ducted Systems

If details of the system’s specification and layout (schematic diagram) are not provided, it should be assumed that a tenant added, fully ducted, air conditioning system in a particular retail warehouse has been properly specified and fit for the purpose of air conditioning the retail space.

4.4.2 Cassette Systems

It is not possible to determine the number and size of the cassette units needed in any individual retail warehouse with certainty. Even counting cassettes will be of little use without details of the output (in Kilowatts) of each cassette.

Having said that, it is more likely that a cassette system in retail units on ‘Open A1’ retail parks will be specified to effectively deal with the relevant space; it is really only less certain in those instances where cassettes are used in the more traditional retail ‘sheds’. Therefore, care should be taken not to assume the whole retail ‘shed’ is fully air conditioned with cassettes; this can only be properly confirmed following inspection and/or by obtaining the detailed installation cost information and, wherever possible, schematic diagrams.

As a rule of thumb to find a backstop addition in the absence of any better indicators of value, it may prove acceptable to count all cassettes and adopt an area of 85m2 per cassette to establish an area to which the backstop figure can be applied.

To assist generally, when in doubt, or when preparing for any valuation tribunal hearing, consider instructing building surveyors to cost out installations of air conditioning systems in the retail warehouse ‘shed’ or ‘open A1’ retail unit.

Practice note 1: 2010 - Tenant added supported first floors in retail warehouses

Summary

This Practice Note provides valuation guidance on the treatment of tenant added first floors in retail warehouses for the 2010 Rating Lists (such floors are commonly referred to as “mezzanines”). It outlines the steps to be taken when considering such floors and recommends using a virtual rent approach where no better evidence or indicators of value are available.

Whilst mezzanine floors subsequently installed by landlords as part of the initial letting arrangements for a particular tenant are covered by this note, floors that are built into the property as part of the original construction are not.

1. Co-ordination

The framework for co-ordination is shown in Rating Manual Section 6 Part 1,

When preparing valuations for Revaluation, co-ordination of approach is only necessary if for whatever reasons the default or backstop figures proposed are not incorporated in Units’ ‘Other Addition’ (OA) tables. Where costs in individual instances are amortised in order to establish the appropriate addition to make, these should be co-ordinated on a cluster basis with neighbouring Units. Similar action should be taken if rental evidence begins to emerge indicating a relative level of value, expressed as a percentage of ground floor value, as appropriate.

Additionally, any such bespoke costs and rental evidence should be copied to the Class Coordination Team or the Head of the Commercial, Leisure and Civics Team within the National Valuation Unit.

Once Rating Lists are published, levels of value in respect of retail warehouses where tenant added floors are in issue will become settled over time. Although floors are only part of the overall rateable value determination, co-ordination is recommended to ensure that floors are dealt with consistently in retail warehouses in Valuation Officers’ Rating Lists.

2. Introduction

The following terms and their definitions should assist when considering this note:

Mezzanine – Tenant Added First Floor in a Retail Warehouse, defined as an inserted partial storey between two stories, or an inserted intermediate floor or floors within what would otherwise be a single storey hereditament. This may include small block built floors but the fundamental difference between mezzanine and purpose built floors is that the former can be readily removed without affecting the structural integrity of the retail warehouse.

Virtual Rent – Arrived at by amortising the individual capital cost of providing the mezzanine floor in a hereditament so as to determine an annual equivalent value.

Base Price – The starting price for a specified type of sales mezzanine, before any additions or adjustments are made for mechanical equipment.

Backstop or Default figure – Proposed £/m2 recommended in the absence of any better indicators of value.

Travellator – Moving walkway (similar to those seen at airports) that enables trolleys and buggies etc. to access the mezzanine floor. Ordinarily found in pairs.

Hoists – Rudimentary one or two person lift, may be fully open or within its own shaft, but will not have a fully enclosed internal caisson or compartment. More likely to be located at the edge of average quality mezzanines.

Purpose Built Floors - Floors that are built into the property as part of the original construction.

This Revaluation 2010 Practice Note provides guidance regarding the valuation of mezzanine sales, storage and office areas within retail warehouses. This note does not deal with purpose built floors in retail warehouses; nor does it cover mezzanines located in buildings used other than as retail warehouses.

Where a virtual rent is to be used, backstop figures are recommended in paragraph 7 for sales mezzanines of a defined specification. Also provided is an approach for those mezzanines installed with value significant features such as escalators, large passenger lifts or wide spans between columns.

In some instances, it may be necessary to obtain full costs of installation of the mezzanine and these used to derive a virtual rent on a case-by-case basis. Any such details of costs obtained for mezzanines should also be copied to the Head of the Commercial Team within the National Valuation Unit.

3. Basis of Valuation for Retail Warehouses in general

Retail Warehouses are typically rented and there is generally sufficient evidence available to establish a basis for the standard unit. When considering the additional value of the mezzanine floor, all primary rental evidence should be reviewed. Such a review should also include any other appropriate additions for the tenant’s fitting out, including air conditioning, suspended ceilings, etc. In other words, it is inappropriate to deal with the mezzanine in isolation, without considering the correctness of the valuation of the whole unit.

The use of all the rental and comparable evidence available will ensure that any uplift adopted for the mezzanine floor will be based on a firm and defendable foundation. Valuers will also need to consider the value effect of variations in clear height of the unit itself, without which the addition of a mezzanine would not be possible.

At the same time, consideration will need to be given to correctly maintaining the accuracy of comparable assessments of standard retail warehouse units (i.e. those without mezzanines) in the particular locality, adjustments being made upwards or downwards as appropriate.

4. General Valuation Considerations when dealing with Tenant Added Floors

Mezzanine floors in retail warehouses are constructed to varying standards of quality and finish. Usually they are tenants’ additions or improvements and frequently built over large areas of the available ground floor space. The approaches and figures suggested below for the valuation of mezzanines reflect the restricted headroom of the ground floor.

In most cases, this class of property is valued on the rental basis. When considering evidence in arriving at values to be placed on any mezzanine, it is important to follow the guidance found in Rating manual 4:5 Rental Adjustments - PN1 - 2010: (Part 14: Improvements).

A step-by-step process should be applied to any evidence available, with the next step applying only if a satisfactory answer is not to be found from the previous step.

Step 1: Is to look at rental evidence to see if it can be clearly established how these features are quantified in the rental market.

Step 2: Is to consider agreed rating settlements to see if they can clearly establish in value terms the effect on the assessment of such features.

Then, if these steps fail to provide reliable evidence, and only then,

Step 3: Is to have regard to the individual cost of providing the mezzanine in the hereditament so as to determine its value to a tenant. This is a Virtual Rent approach.

The above approach is in line with the decisions in Lotus & Delta v Culverwell (VO) LT 1976 RA 141, Edma (Jewellers) Ltd v Moore (VO) LT 1975 RA 343, and Dorothy Perkins v Casey (VO) LT 1994 RA 391.

Those cases provide useful guidance on the hierarchy of evidence to be considered when seeking to quantify the value of improvements. Regard to cost should only be made as a last resort, in the absence of better, more direct, evidence of rental values.

5. Availability of Rental Evidence (Step 1)

Rental evidence of retail warehouses with a mezzanine installed prior to the Antecedent Valuation Date (AVD) of 1 April 2008 is becoming more apparent; they are no longer such a new concept and some units are changing hands with mezzanines installed. Any such evidence must be carefully considered to establish if the value of the mezzanine can be ascertained before moving on to Steps 2 and 3.

Units with mezzanine floors offered for assignment or subletting commonly give the alternative option of the added first floor being removed by the outgoing tenant prior to occupation. This suggests a market preference for a unit “clear” of the mezzanine. Where a tenant wants a mezzanine added at the outset, sometimes the landlord is willing to install it at cost to the tenant, either at a capital cost added to the rent; alternatively the landlord may add a mezzanine to the tenant’s specification as part of an inducement package. However, the fact that some occupiers are prepared to pay for the cost of improvements, either directly or through increased rent, shows they are of value at least to those tenants. In such circumstances, care must be taken to establish what the rent includes for the mezzanine and how it was calculated.

Occupiers are now required to apply for planning consent where they wish to install or insert a mezzanine floor in an existing retail warehouse. This may result in a reluctance to remove existing mezzanines prior to any re-letting and result in more relevant rental evidence emerging.

It is hoped that further rental evidence of mezzanine floors will become available as the retail market develops and evolves. Rental evidence should always be the first step in establishing the value of mezzanine floors in any locality, but care will be needed where trading patterns have changed since the AVD. Any further evidence of lettings with the benefit of mezzanine floors, either installed by a landlord or added by a previous tenant, should be verified and details sent to the Head of Commercial, Leisure and Civics Team within the National Valuation Unit for information.

6. Availability of Comparable evidence (Step 2)

Assessments in compiled rating lists will always represent evidence against a valuation officer, since they embody the patterns of value adopted by the valuation officer at the revaluation. They will only provide evidence on which to rely once they have been generally tested and accepted in the appeal process. Additions made for relatively small elements of valuations, such as mezzanine floors, may not be fully tested in the context of the valuation for the whole hereditament even if the rateable values form a body of agreement. It will often be open to question whether a ‘tone of the list’ for elements of valuations has settled in such instances.

In the absence of evidence, regard may be had to relative levels of value determined in the previous list. Very careful judgement will be required to establish how much weight, if any, should be attached to such evidence. However, it may be possible to make some broad observations. For example, given a situation where ground floor values in a particular locality have risen from one AVD to the next, it may be considered a reasonable expectation that the value in £/m2 added by the mezzanine floor should not, however determined, be any less in £/m2 than the corresponding value fairly and openly determined in the previous list.

It is important to acknowledge that the rateability of mezzanine storage has been the subject of litigation in the valuation tribunal. Toys R Us v. Penny (VO) VT 1999, which was further appealed to the Lands Tribunal but withdrawn by a Lands Tribunal consent order, established the rateability of mezzanine storage and decided that significant value is added by the provision of mezzanine floors, not just a nominal amount. More recent valuation tribunal decisions may emerge; however, these would be expected to deal with valuation issues, and be determined on the particular facts of the case under consideration. Details of such decisions should be sent to the Head of Commercial, Leisure and Civics Team within the National Valuation Unit for consideration.

7. The virtual rent approach (where no rental or comparable evidence is available) (Step 3)

Virtual rents are a widely accepted and long standing approach to the valuation of tenants’ improvements where no better evidence exists; it operates by assessing the annual equivalent of sums expended by a tenant in obtaining the hereditament as it stands, part in the form of rent and part in capital expended. The actual costs should be obtained wherever possible; however, for certain specific types of mezzanine, the following figures have been derived from virtual rent calculations where evidence of actual costs of providing such floors has been obtained.

7.1. Mezzanine Sales Floors

Descriptions of floor quality and mechanical equipment in respect of specific types and quality of sales mezzanines are provided in this paragraph. Corresponding backstop figures are recommended in the table below in the absence of the actual costs of the floors in question. It is important to make sure that any description and “backstop” figure adopted is matched appropriately for the quality of the subject mezzanine floor. Any mezzanine floor specification that falls outside the descriptions below may require further investigation or costings.

7.1.1. Lifts and Hoists

All mezzanine sales floors must comply with the Disability Discrimination Act 2005 (DDA) (as amended) and access provided to them. Almost always a lift or hoist is present. The backstop addition increases where either the lift has a capacity of 13 persons or more, or where there are two smaller lifts available for customers’ use (e.g. two 6 person lifts). The addition to the sales area for two lifts does not apply where the second lift is clearly a storage lift dedicated to the rear partitioned off storage area and never used by the public.

7.1.2. Size considerations – General

The majority of sales floors are anticipated to be in a size range between 500m2 and 1,250m2 of dedicated sales area. Outside this range, a further adjustment may be necessary to alter the £/m2 to reflect the spread of the fixed cost items over smaller or larger floor areas. In particular, the ‘best quality’ floors tend to have more numerous and costly fixed items such as escalators and larger lifts.

In making such adjustments, care should be taken at the range boundaries of 500m2 and 1,250m2 to avoid smaller floors having higher additions than larger floors and larger floors having lower overall additions than smaller floors. A common sense view should be taken to avoid such illogical outcomes; it is a matter of judgement, having regard to the size of the particular floor and the numbers of escalators/lifts and other fixed cost items present.

Where mezzanine floors are partitioned off into sales, storage and offices, care should be taken when making adjustments to the default or backstop figures for size to base any size adjustment on the area dedicated to sales only. If the quality of the floor is such that the storage and office portions have lower values than the sales area, it is not appropriate for area of the whole floor to be used as the start point for considering a further adjustment; only the area of the portion used for sales should be considered when contemplating a size adjustment.

7.1.3. Size considerations – smaller floors

Application of the “backstop” figures detailed below should be limited to retail warehouses where the additional tenant added first floor sales space covers more than 500m2 (or at least 50%, if smaller) of the available total ground floor area. The figures do not therefore readily apply to small mezzanine sales floors below 500m2 where it may be necessary to increase the £/m2 by up to 10% to reflect the spread of the fixed cost items over a smaller floor area; the actual adjustment being dependent on the proportions of the elements included in the particular floor. For example: the extent of balustrade, types and quality of access, whether stairs lifts or escalators, and quality of fixtures and fittings.

7.1.4. Size considerations – larger floors

For mezzanine sales floors between 1,250m2 and 1,750m2, it may be necessary to reduce the £/m2 by up to 10% to reflect the spread of the fixed cost items over a larger floor area. The actual percentage should reflect the relationship between amount of floor area and the relative cost of the fixed items. For floors between 1,251m2 and 1,375m2, depending on the percentage adjustment, it is important to avoid a larger floor having a lower addition than a floor of 1,250m2. Care must be taken to ensure this does not happen.

For mezzanine sales floors over 1,750m2, 10% is considered appropriate. Should any higher adjustment be sought, it will be necessary for the Valuation Officer to be provided with further details, such as a properly authorised occupier’s schedule of the actual costs. Evidence of ‘economies of scale’ will be needed to show a more significant adjustment when determining the correct virtual rent addition to make for the mezzanine floor.

7.1.5. Mezzanine Sales Floor Quality

See below for descriptions of various mezzanine sales floor qualities. The vast majority of mezzanine sales floors fall within Average, Above Average and Best. In rare instances floors are below average, and these have been catered for below, but are in reality little better than storage mezzanines.

Poor quality sales mezzanine: SRF (Supported Retail Floor) – Use for poor quality sales mezzanines that are of extremely light construction, no lift, no finishes to the floor or ceiling underneath, no additional lighting other than already present in the premises, restricted head height and a utilitarian feel.

Below average quality sales mezzanine: SFF (First Floor Sales) - Use for poor quality sales mezzanines that are of light construction, no lift, no ceiling finishes underneath or above the floor, and a utilitarian feel with externally fitted strip lighting. Noticeable pillars and the floor is lightweight. The visual effect underneath the floor is that of obstructed space. May have basic plastic type floor finishes on the decking.

Average quality sales mezzanine: SF1 - Use for average quality sales mezzanines

Whilst sales floors can be built to a much higher quality, only exceptionally would sales floors be poorer than this. Comprises a timber floor, supported by timber or structural steel work. Small spans with noticeable pillars. The visual effect underneath the floor is that of obstructed space. Accessed by metal or timber staircase. Ceilings unfinished above the floor. Ceilings below the floor, either unfinished or having an “office style” lightweight tile suspended ceiling. Will have adequate fluorescent strip lighting and security/fire detectors. May have simple glass or chrome balustrade along a straight floor edge with simple 90 degree turns where necessary. Typically no lifts but will almost certainly have a hoist of some kind.

Mezzanine Floors in Retail Warehouses - Average Quality: Image 1 Mezzanine Floors in Retail Warehouses - Average Quality: Image 2 Mezzanine Floors in Retail Warehouses - Average Quality: Image 3 Mezzanine Floors in Retail Warehouses - Average Quality: Image 4 Mezzanine Floors in Retail Warehouses - Average Quality: Image 5 Mezzanine Floors in Retail Warehouses - Average Quality: Image 6

Above average quality sales mezzanine: SF2 - Use for above average quality sales mezzanines

Usually a timber floor, supported by structural steel work. Fully fitted to a good standard, the floor probably has “office style” suspended ceilings above and almost always a suspended ceiling beneath, which may include some feature lighting. May have glass or chrome high quality balustrade, which could follow a curved or multi-angled floor edge. Often has ‘generously appointed’ staircase(s), sometimes with half landings leading to separate flights. Small span floors with noticeable supporting pillars. The visual effect underneath the floor is that of obstructed space to a similar extent to that of the average quality floor. Often, but not always, served by passenger or disabled lift and possibly a goods hoist.

Mezzanine Floors in Retail Warehouses - Above Average Quality: Image 1 Mezzanine Floors in Retail Warehouses - Above Average Quality: Image 2 Mezzanine Floors in Retail Warehouses - Above Average Quality: Image 3

Typically best quality sales mezzanine, or those with specific features: SF3 to SF9 - Use for currently best quality sales mezzanines (as at April 2008)

Typically present in “open A1” retail parks. Will have timber, cement screed or (in exceptional circumstances) reinforced concrete flooring, supported by encased structural steel work. Fully fitted to a high standard with quality suspended ceilings and high quality integral lighting both above and beneath the floors; this will often appear similar to that found in prime town centre retail positions. Where present in the unit, will normally have air-handling/conditioning systems integrated into the ceiling above and below the floor. Often have glass or chrome high quality balustrade (where present) and “generously appointed” staircase(s). Wider span floors with few pillars that will tend to be in single rows down the centre of a ‘typical’ unit with corresponding supports against the side walls. The visual effect is one of clear space and good height. Often, but not always, served by escalator(s) and a goods hoist. Will almost invariably have an enclosed lift, and may even have two lifts.

Mezzanine Floors in Retail Warehouses - Average Quality: Image 8 Mezzanine Floors in Retail Warehouses - Best Quality: Image 2 Mezzanine Floors in Retail Warehouses - Best Quality: Image 3 Mezzanine Floors in Retail Warehouses - Best Quality: Image 4 Mezzanine Floors in Retail Warehouses - Best Quality: Image 5 Mezzanine Floors in Retail Warehouses - Best Quality: Image 6 Mezzanine Floors in Retail Warehouses - Best Quality: Image 7 Mezzanine Floors in Retail Warehouses - Best Quality: Image 8

7.1.6. Recommended Backstop or Default Figures

The following table can be used to determine a backstop figure for average quality floors and above, the final price depending on the range of features and quality of the elements that form part of the tenant added sales floor.

Air conditioning (AC) is NOT included in any of the figures shown below. Where an addition is to be made for air conditioning, guidance is located in Rating manual 5:920 Retail Warehouses – PN2 - 2010: (Air Conditioning in Retail Warehouses).

For the avoidance of doubt, where there is AC benefitting the mezzanine floor, the appropriate area must be dealt with in addition to the area benefitting the ground floor. For example, a ground floor sales area of 2,000m2, and a mezzanine of 1,000m2 would result in 3,000m2 attracting a separate addition as specified in the advice mentioned above.

	*FINISHES:	Average	Above Average	Best at the Antecedent Valuation Date
ESC-ALA-TOR- (S)***	Lifts Floor Construction	12 person or less	13 person or more, or 2 smaller passenger lifts**	12 person or less	13 person or more, or 2 smaller passenger lifts**	12 person or less	13 person or more, or 2 small passenger lifts**
0	Timber Floors	SF1 £25	SF2 £30	SF2 £30	SF3 £35	SF3 £35	SF4 £40
Concrete Floors	-	-	-	-	SF6 £50	SF7 £55
1	Timber Floors	SF2 £30	SF3 £35	SF3 £35	SF4 £40	SF4 £40	SF5 £45
Concrete Floors	-	-	-	-	SF7 £55	SF8 £60
2	Timber Floors	SF3 £35	SF4 £40	SF4 £40	SF5 £45	SF5 £45	SF6 £50
Concrete Floors	-	-	-	-	SF8 £60	SF9 £65

*Air Conditioning is not included in the figures in this table and must be added as appropriate based on the current advice in Rating manual 5:920 Retail Warehouses – PN2 - 2010: (Air Conditioning in Retail Warehouses).

**Where 2 lifts of 13 person capacity each (or more) are present, a further addition of £5/m2 should be made.

***Where present, travellators would attract a further addition of £10/m2 each.

7.2. Mezzanine Storage Floors

Application of the figures detailed below should be limited to retail warehouses where the additional tenant added first floor storage space covers no more than 750m2 of the available total ground floor area. This does not therefore apply to very large tenant added first floor storage areas, which are likely to cost less per m2.

Figures in respect of specific types of “average” quality and “above average” quality storage floors are suggested in the absence of the actual costs. It is important to make sure specifications for the “backstop” figure adopted is matched appropriately for the quality of the subject mezzanine storage floor. Any mezzanine floor specification that falls outside the descriptions below may require further investigation or costings.

Average quality storage floor: £15/m2: SSF (Supported Storage Floor) – Use for average quality storage floors. This is the standard floor quality. Comprises timber floor; supported by steel work spanning short centres, often designed to support an integral racking system underneath. This type of floor typically has storage below, being situated at the rear and sometimes along the sides of the unit in a “U” shape. Accessed by metal or timber staircase. No finishes above and below apart from lighting and security/fire detectors. May have restricted headroom. Typically no lifts but hoists or conveyor belts may be evident.

Above average quality storage floor: £20/m2: RSF (First Floor Stores - Retail) - Use for above average quality storage floors. Timber or concrete section floor, supported by encased structural steel work spanning wider centres than would apply to the average floor specified above. Fully fitted to a high standard with suspended ceilings beneath the floors. This type of floor typically stretches over the ground floor sales area and has a goods lift or hoist with broad steel staircase(s).

7.3. Mezzanine Office Floors

For small mezzanine floors wholly dedicated to office accommodation as a proportion of the main space price (£/m2), rental or comparable assessment evidence is sometimes available based on an analysis of comparable sized purpose built floors in retail warehouses. Such small office floors are normally dealt with at 100% of the main space price and small mezzanines could be dealt with in the same way. This would also include small block built office or amenity floors, typically found in older generations of retail warehouses.

Where a larger mezzanine floor (of a size or coverage normally associated with retail space) is wholly dedicated to offices, further guidance should be sought from the Head of Commercial, Leisure and Civics Team within the National Valuation Unit.

However, where office accommodation is partitioned off from a sales mezzanine floor, it is appropriate to consider an addition based on the virtual rent approach. Depending on the quality of the finishes of the office space, it is anticipated the addition for the office floor will be at the base price of the particular type of sales floor installed. That means between £25.00/m2 and £35.00/m2.

If the office accommodation is partitioned from a storage mezzanine floor, and no sales space is provided by the floor, its value is anticipated to be between £20.00/m2 and £30.00/m2 depending on quality of finish.

There are no Other Addition (OA) codes for offices in retail warehouses; for small office floors it is anticipated they are dealt with at line entry level using an Accommodation Use Code (AUC). In instances where it is required to show all or part of a large mezzanine floor in the valuation, an appropriate OA code for sales floors should be used and the description overwritten as appropriate.

7.4. Floors partitioned into a mixture of uses

Whilst the floor itself is often of the same basic construction, the costs of finishing different elements will vary and the fixed cost items dedicated to each element will often be commensurate with the resultant size of the sales, storage or office element. It is therefore acceptable for caseworkers to consider applying different prices to sales, storage and office elements of mezzanine floors.

Where mezzanine floors are partitioned off into sales, storage and offices, care should be taken when making size adjustments to the default or backstop figures to ensure any size adjustment on the area is based on the sales area only (see paragraph 7.1.2. above). If the quality of the floor is such that the storage and office portions have lower values than the sales area, it follows that it is not appropriate to use the overall area of the mezzanine floor as the start point for considering an adjustment; only the area of the portion used as sales should be considered.

Furthermore, where the first floor is:

of timber construction,
being dealt with by reference to the base price only (there are no escalators, etc.),
mainly dedicated to sales,
partitioned into storage at the rear, and
essentially part of the same structure, then

the appropriate value attributed to the sales element should be considered as a ‘start-point’ for the storage part. It may still be appropriate to adjust the price attributed to the storage part downwards to reflect reduced quality of finish but any adjustment is expected to be slight in such instances, bearing in mind the lack of fixed price items present, such as escalators.

Where the first floor has fixed cost items present (such as escalators) and mainly dedicated to sales and has a storage element to the rear, but is essentially part of the same structure, then the appropriate value attributed to the sales element should not be adopted for the storage part, but storage prices should be considered. The price adopted depends on the difference in quality between the sales, storage and offices elements of the mezzanine floor, and is therefore anticipated to range between £15.00/m2 and £35.00/m2.

8. Other Valuation Considerations

When considering or checking costs of installation, the following list (not exhaustive) of features may be useful:

Details of supporting steelwork (size, type, spacing’s between supports and how the supports are covered/finished)
Foundations and bases for steel frame stanchions; are they bolted to ground floor, or cast into foundations
Bracing; is there provision of full height cross bracing for lateral stability
Any incidental work to existing ground floor
Height of mezzanine above ground floor
Changes to the existing roof members where necessary to accommodate the new floor
Decking and supports to form new floor (timber or concrete beam, or concrete cast in situ)
Finishes /casings around steel columns
Partition between Sales and Storage areas (Quality, Construction, Finishes, Ironmongery, Doors and glazing – extent and fire resistance)
Details of any other partitions
External fire escape doors complete with all electronic and other security controls
Internal fire resisting doors with access security controls (e.g. Sales/Storage access)
Fire Protection. Typically, if the mezzanine occupies 50% or more of the ground floor area then it may need to be fire protected, if the mezzanine floor is to be used for offices or has people working on it, it should be fire protected, if the size of the platform is more than 20 metres in either direction, it should be fire protected
Suspended ceilings to underside of mezzanine and to first floor area. In particular, type, integral lighting, feature lighting, tile/grid type, or ceiling finish
Floor finish and screed to sales and/or storage areas on both floors
Balustrade construction /materials to front (and sides and stairs as appropriate) of mezzanine area. Note the shape and style of floor edge followed by the balustrade.
Base plinths for display areas
Creation/enhancement of staff amenity area, including partitions, WCs, rest rooms etc
Passenger lift in sales area – number of passengers and weight limits. Is there a lift pit?
Goods lift in storage area – weight limits. Is there a lift pit?
Escalators/travelators/staircases for public access to first floor – Length and width including specification plate details if available
Secondary staircase for staff usage in storage area
External/Internal fire escape staircase(s) together with any accommodation works
Provision of heating/air conditioning to ground floor and new floor levels
Electrical installation including lighting type and grid layout, power outlets and emergency lighting to both around and new floor levels
Smoke detectors, fire alarms, Sprinklers, Public address (PA) systems and closed circuit television (CCTV) systems
Additions for Preliminaries, site overheads, site supervision, project management, etc
Details of professional fees/LA Building Regs etc incurred
Building Regulations - Any project will require building regulations approval which will include the proposed project in order to annotate suitable smoke detection, fire alarm, emergency lighting, means of escape, a design access statement illustrating compliance with Building Regulations Part M and the Disabled Discrimination Act (with particular relevance to address the issues in provision of a disabled platform lift or to propose the negation of this requirement, instead providing a Part M ambulant person stair).

8.1. Where actual costs are obtained:

The “backstop” figures detailed in paragraph 7 must be used with care: where full costs are obtained and properly verified, they may show a virtual rent addition either above or below that recommended. Any costs obtained should be tested to ensure that all elements are present, including professional fees and VAT. Additionally, the presence of “locked-in” maintenance agreements may greatly diminish the installation costs of certain elements (such as air handling systems), which should therefore be increased as appropriate. Where necessary, assistance is available from VOA Building Surveyors. Should costs require amortisation, a tenants’ improvements calculator is attached below, and will amortise costs based on certain parameters.

8.2. Rate used for amortisation:

When amortising the cost of tenants’ improvements, advice contained in the rental adjustment practice note at Rating Manual Section4 - Part 1 PN1 2010: Parts 14, 15 and 16 should be followed. Generally 6% is considered appropriate for retail, but there may be reasons to adjust this.

8.3. Term used for amortisation:

When considering the term over which to amortise the cost of tenants’ improvements, advice contained in [Rating Manual Section 4 - Part 1 - Para 17(https://www.gov.uk/guidance/rating-manual-section-4-valuation-methods/part-1-practice-note-1-2017-rental-adjustment) should be followed. The anticipated life of the item may vary depending on its complexity, build quality and specification. Similarly, other issues need to be considered, such as likely length of occupation and/or lease, together with the impact of Landlord and Tenant legislation.

8.4. Practical matters:

When using the Rating Support Application (RSA), it is preferable to deal with “Step 3” additions in respect of mezzanine floors using “other additions” (OA). Using the following OA codes as recommended below should automatically produce certain figures in respect of mezzanine floors as follows:

Sales Floor OA Code	RSA Default Description	Default Backstop
SRF	(Supported Retail Floor)	£15:00
SFF	(First Floor Sales)	£20:00
SF1	(Mezzanine Floor)	£25:00
SF2	(Mezzanine Floor)	£30:00
SF3	(Mezzanine Floor)	£35:00
SF4	(Mezzanine Floor)	£40:00
SF5	(Mezzanine Floor)	£45:00
SF6	(Mezzanine Floor)	£50:00
SF7	(Mezzanine Floor)	£55:00
SF8	(Mezzanine Floor)	£60:00
SF9	(Mezzanine Floor)	£65:00
Storage Floor Code	RSA Default Description	Default Backstop
RSF	(First Floor Stores in a Retail Unit)	£20:00
SSF	(Supported Storage Floor)	£15:00
Other OA Code	RSA Default Description	Default Backstop
AIR	Air Conditioning	£4:00

However, when either using “backstop” figures for mezzanine floors that do not correspond to the figures shown in the table above, or if applying a figure derived from the cost of installation, it is preferable to deal with the mezzanine floor using the OA code that produces the closest price, overwriting the default backstop price as appropriate.

It is also essential that a note be made in the remarks field of the valuation, specifying the price added for the mezzanine floor and why the particular price has been used.

Where actual costs are relied upon, and Valuers are satisfied that the costs provided correctly and adequately cover the features installed, the calculator (found at 10 below) may assist in determining the appropriate price to adopt in the valuation.

9. Notes and General Observations

Emphasis should be placed on the merits of the step-by-step approach to the valuation of these mezzanine floor areas as detailed in the Lotus and Dorothy Perkins decisions. These mezzanine floors are rateable tenants’ improvements, and should be valued as such. The above approach allows fully for the adoption of a scheme based on percentage of value as evidenced by rental or comparable evidence where available. If the rental market develops, then the reliance on a virtual rent approach will diminish.

The above approach provides a way to achieve consistency when tackling mezzanine floors, based on established principles and practice.

10. Tenants’ Improvements Calculator

Click here to use the calculator

Practice note 2: 2010 - Air conditioning in retail warehouses

Summary

This Practice Note provides valuation guidance on the treatment of air conditioning in Retail Warehouses for the 2010 Rating Lists.

It has been updated following the resolution by consent of an appeal to the Lands Tribunal in respect of an entry in a 2005 Rating List and outlines the steps to be taken when considering air conditioning systems and, as part of the approach, recommends using £4.00/m² over the area effectively air conditioned where no better rental and relevant assessment comparable evidence or indicator of value is available.

1. Co-ordination

The framework for co-ordination is shown in Rating Manual Section 6 Part 1.

Co-ordination of approach is only necessary if for whatever reasons the default figures proposed are not incorporated in Group’s OA tables. Where costs in individual instances have been amortised in order to establish the appropriate addition to be made, these will have been co-ordinated on a cluster basis. Similar action should be taken where rental evidence emerged and indicated a relative level of value, expressed as a percentage of ground floor value, as appropriate.

Co-ordination of approach will have already ensured that valuations have been approached in the same way within each 2010 rating list. Co-ordination will remain necessary where the approach to the addition of air conditioning in retail warehouse assessments in any particular rating list is not considered settled.

2. Background

For 2010 compiled rating lists, the benefit to the tenant of adding air conditioning in retail warehouses has been dealt with in the main by adopting an approach based on a £/m2.

3. Introduction

This Practice Note provides valuation guidance on the treatment of air conditioning in Retail Warehouses for the 2010 Rating Lists. The valuation approach remains the same as adopted for all tenants’ improvements, which is found in the rental adjustment practice note at Section 4 Part 1: Rental Adjustment Practice Note 1, 2010, Part 14 - Improvements.

4. Description and Functions of Air Conditioning Systems

The term “air conditioning” covers a variety of functions ranging from merely cooling and re-circulating air, to replacing, comfort heating and then fully conditioning it. This is achieved either by the use of cassettes or a ducted system.

5. Rateability

For the 2010 Rating Revaluation the rateability of air conditioning systems arise under the Plant and Machinery Regulations 2000.

Air conditioning systems continue to be rateable, unless used mainly or exclusively in connection with manufacturing operations or trade processes. Should it be argued that an air conditioning system in a retail warehouse is not rateable on these grounds, a full submission should be made to CEO (Rating) following the usual protocols.

6. Outline of Valuation Approach

When valuing air conditioning the recommended approach is:

Firstly, seek rents that already include the value of air conditioning.
Such rents should be analysed so as to quantify the effect of air conditioning on the rental market being considered.
Consider comparable assessment evidence where it is available
Where no comparable rental or assessment evidence can be found, an addition will be generally appropriate, ideally calculated using the cost of providing the actual system installed in the subject property.
Once the actual cost of provision is established, this will be converted to an annual equivalent.
A back-stop approach at £4.00/m² is provided for use in the absence of any more reliable evidence of value to the area benefitting from the AC.
The value of air conditioning is only one of several value significant factors affecting the hereditament, and as such should preferably not be treated as a separate issue.

The above approach is in line with the decisions in Lotus & Delta v Culverwell (VO) LT 1976 RA 141, Edma (Jewellers) Ltd v Moore (VO) LT 1975 RA 343, and Dorothy Perkins v Casey (VO) LT 1994 RA 391.

These cases provide useful guidance on the hierarchy of evidence to be considered when seeking to quantify the value of improvements. Regard to cost should only be made as a last resort, in the absence of better, more direct, evidence of rental value.

For more information on the Valuation Approach, please refer to the rental adjustment practice note at Section 4 Part 1: Rental Adjustment Practice Note 1, 2010, Part 14 - Improvements.

7. Annual Value of Air Conditioning Systems in Retail Warehouses

Wherever possible the price adopted should be based on rents that already include the value of air conditioning.

If reliable comparable rental and assessment evidence is not available to show the value of air conditioning, the annual rental equivalent of these improvements will need to be found based on cost. Establishing a value based on cost is next step in the approach.

The costs actually incurred by the retail warehouse occupiers should be used wherever possible. However, it is acknowledged that the recommendation for VOs to amortise costs as part of a virtual rent approach in respect of air conditioning is not accepted by ratepayers and their advisors.

8. Summary of Approach in the Absence of both Reliable Comparable Rental and Assessment Evidence and Actual Costs

Where there is no assistance derived from comparable rental and/or assessment evidence, and the costs actually incurred have not been provided or obtained, only a very general indication can be given as to the addition that should be made.

Bearing in mind that details of the actual system are not known, the type of system assumed for the purpose of ascertaining a backstop price to be adopted comprises a ducted system dealing with the floor space in an adequate manner.

However, it is recognised that there are increasing examples of typically inadequate or underspecified basic cassette systems providing heating/cooling of air with moisture removal and air circulation to just a portion of the space (e.g. a tenant added mezzanine floor).

To assist in those 2010 lists where no better indicators of value are forthcoming, it is recommended that in the absence of any better indicators of value, the default position is £4.00/m2, and this should be assigned to the RSA “AIR” code in respect of the appropriate “Other Addition” table.

This recommendation flows from the resolution by consent of an appeal to the Lands Tribunal in respect of an entry in a 2005 Rating List.

However, there are certain practical considerations in respect of the distinctions between ducted and cassette systems and these are outlined below.

8.1. Ducted System in any type of Retail Warehouse

Generally, for a tenant installed ducted system with the same specifications as detailed in paragraph 9 below, £4.00/m2 may be used. This figure is based on providing a system designed to properly condition the air in respect of just the retail area concerned. It is a backstop price for a ducted system dealing with a particular retail space, expressed in £/m2 terms

In practice, it is reasonable to assume that ducted systems will be bespoke and therefore properly specified to deal effectively with the given volume to be air conditioned, especially considering that the figures in this section are used in the absence of anything better. Therefore, it is not envisaged that this type of system will be over specified or under specified and the whole area benefiting from the ducted system should be taken as air conditioned.

8.2. Air Conditioning Systems in Retail Units on “Open A1” Retail Parks

“Open A1” retail parks have large, typically glass fronted “sheds”, attractive to national high street retailers such as Next and M&S. The units are typically fitted to a standard, producing the same retail environment one would expect to find in a high street shop. These may have cassette or ducted systems air conditioning systems.

Generally, for a modern cassette or ducted system with the same specifications as detailed in paragraph 9 below, £4.00/m2 may also be used. This figure is based on providing a system designed to condition the air in respect of the retail area concerned.

Due to the nature of the retailers concerned, once fitted, it is envisaged that air conditioning systems in such units will be well able to deal with all the retail space in the unit and, if anything, more likely to be over than under specified. Irrespective of the nature and quality of tenants’ improvements in these units such as floors and finishes etc., where no better evidence is forthcoming an addition for air conditioning is appropriate in all cases.

From May 2013, where the air conditioning is installed as part of the fitting out and includes a inserted upper (mezzanine) floor, it is important to remember that heating and cooling costs are no longer expected to be included in the upper (mezzanine) floor price, defined in Paragraph 7.1 of Rating Manual Section 6 part 3: Section 878: 2010 PN1. When making an addition for air conditioning, the area adopted in the “OA” part of the valuation is expected to show the total relevant area of both mezzanine and ground floors benefitting from the air conditioning in the Retail Warehouse.

If costs are ascertained in any particular case, adjustments should be made depending on the details of the actual systems concerned. However, it follows that the more the details that are known about any particular system, in particular the costs of installation, the more likely a specific virtual rent could be ascertained as detailed in paragraphs 6 and 7 above.

8.3. Cassette Systems in Retail Warehouses or “sheds

Retail warehouse “sheds” cater for bulk goods, electrical and furniture occupiers. The units are fitted in a manner commensurate with that use, and that may include a cassette based air conditioning system.

Generally, for a modern cassette system with the same specifications as detailed in paragraph 9 below, £4.00/m2 may be used. This figure is based on providing a cassette system designed to condition the air in respect of just the retail area concerned.

It is not envisaged that a cassette system in a more traditional retail “shed” will be over-specified; it is considered more likely to present a system attempting to deal with a smaller proportion of the given retail floor space, such as a mezzanine floor. In such instances, an appropriate proportion of the retail area should be adopted, this being the area of the “shed” that it is reasonable to suppose would benefit from the system.

Once costs are ascertained in any particular case, adjustments should be made depending on the details of the actual systems concerned. However, it follows that the more the details that are known about any particular system, in particular the costs of installation, the more likely a specific virtual rent could be ascertained as detailed in paragraphs 6 and 7 above.

9. Determining the specification of the system

The way that some retail warehouses are used may have an affect on costs of installation, particularly where this involves heat-generating equipment. Each system is likely to have been designed to meet the individual property’s physical characteristics and the tenant’s occupational needs.

9.1. Ducted Systems

If details of the system’s specification and layout (schematic diagram) are not provided, it should be assumed that a tenant added, fully ducted, air conditioning system in a particular retail warehouse has been properly specified and fit for the purpose of air conditioning the retail space.

9.2. Cassette Systems

It is not possible to determine the number and size of the cassette units needed in any individual retail warehouse with certainty. Even counting cassettes will be of little use without details of the output wattage of each cassette.

Having said that, it is more likely that a cassette system in retail units on “Open A1” retail parks will be specified to effectively deal with the relevant space; it is really only less certain in those instances where cassettes are used in the more traditional retail “sheds”. Therefore, care should be taken not to assume the whole retail “shed” is fully air conditioned with cassettes; this can only be properly confirmed following inspection and/or by obtaining the detailed installation cost information and, wherever possible, schematic diagrams.

As a rule of thumb to find a back-stop addition in the absence of any better indicators of value, it may prove acceptable to count all cassettes and adopt an area of 85m2 per cassette to establish an area to which the backstop figure can be applied.

To assist generally, when in doubt, or when preparing for any valuation tribunal hearing, consider instructing building surveyors to cost out installations of air conditioning systems in the retail warehouse “shed” or “open A1” retail unit.

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Retail warehouses

1. Scope

2. List description and special category code

3. Responsible teams

4. Co-ordination

5. Legal framework

6. Survey requirements

7. Survey capture

8. Valuation approach

9. Valuation support

Appendix 1

Practice note: 2023 - tenant added supported first floors in retail warehouses

1. Market appraisal

2. Changes from the last practice note

3. Ratepayer discussions

4. Valuation scheme

APPENDIX 1

Practice note 1: 2017 - tenant added supported first floors in retail warehouses

1. Market appraisal

1.1 The Use of Mezzanine Floors

1.2 The Cost of Mezzanine Floors

2. Changes from the Last Practice Note

3. Ratepayer Discussions

4. Valuation Scheme

4.1 General

4.2 Terms and definitions

4.3 Outline of Valuation Approach

4.5 Availability of Comparable evidence

4.6 Approach in the Absence of Reliable Rental Evidence and Actual Costs

4.7 Making Adjustments to the backstop additions for Mezzanine Floors in the Absence of Reliable Rental Evidence and Actual Costs

4.8 Mezzanine Sales Floors

4.8.1 Lifts and Hoists

4.8.2 Size considerations – General.

4.8.3 Size considerations – smaller floors

4.8.4 Size considerations – larger floors

4.8.5. Mezzanine Sales Floor Quality

4.8.6 Recommended Backstop Figures

4.9 Mezzanine Storage Floors

4.10 Mezzanine Office Floors

4.11 Floors partitioned into a mixture of uses

4.12 Other Valuation Considerations

4.12.1 Where actual costs are obtained:

4.12.2 Rate used for amortisation:

4.12.3 Term used for amortisation:

4.12.4 Practical Matters:

4.13 Notes and General Observations

Practice Note 2: 2017 - Air conditioning in retail warehouses

1. Market Appraisal

1.1 Introduction

1.2 The market for Air Conditioning Systems

1.3 The Phasing Out of R22 Refrigerant

2. Changes from The Last Practice Note

3. Ratepayer Discussions

4. Valuation Scheme

4.1 Outline of Valuation Approach

4.2 Annual Value of Air Conditioning Systems

4.3 Approach in the Absence of Reliable Rental Evidence and Actual Costs

4.3.1 Ducted System in any type of Retail Warehouse

4.3.2 Air Conditioning Systems in Retail Units on ‘Open A1’ Retail Parks

4.3.3 Cassette Systems in Bulky Goods Retail Warehouses (or ‘Sheds’)

4.4 Determining the specification of the system

4.4.1 Ducted Systems

4.4.2 Cassette Systems

Practice note 1: 2010 - Tenant added supported first floors in retail warehouses

Summary

1. Co-ordination

2. Introduction

3. Basis of Valuation for Retail Warehouses in general

4. General Valuation Considerations when dealing with Tenant Added Floors

5. Availability of Rental Evidence (Step 1)

6. Availability of Comparable evidence (Step 2)

7. The virtual rent approach (where no rental or comparable evidence is available) (Step 3)

7.1. Mezzanine Sales Floors

7.1.1. Lifts and Hoists

7.1.2. Size considerations – General

7.1.3. Size considerations – smaller floors

7.1.4. Size considerations – larger floors

7.1.5. Mezzanine Sales Floor Quality

7.1.6. Recommended Backstop or Default Figures