Valuation Guidelines

1B5 Valuation Program Products in Support of Leasing/Letting Activities

Purpose

The Valuation Program of Public Works and Government Services Canada (PWGSC) provides professional valuation services in support of real property leasing and letting transactions undertaken by PWGSC and other federal departments. This guideline defines three key reports developed by the Valuation Program, in support of leasing and letting planning, negotiations, and transactions for space within buildings^{Footnote 1}.

Table of Contents

• 1.0 Preface
• 2.0 Reports in Support of Leasing/Letting Activities
• 3.0 Developers' Approach to Estimating Market Rent
• Appendix 1a - Market Analysis Report (MAR) - Narrative, Format/Content
• Appendix 1b - Market Analysis Report (MAR) - Form, Format/Content
• Appendix 1c - Market Analysis Report (MAR) - Attestation, Format/Content
• Appendix 2 - Market Survey Report (MSR), Typical Table of Contents
• Appendix 3 - Space Availability Report (SAR), Typical Table of Contents

1.0 Preface

1.1 In order to achieve their program objectives, many custodial federal departments and agencies are involved in the leasing or letting of real property. In the context of this guideline, leasing refers to the acquisition, from another party, of real property for a fixed term by a federal department or agency. Letting refers to the leasing of federal property to another party for a fixed term. Leasing and letting transactions are typically based on market rent.

1.2 Through the Accommodation Program, PWGSC is mandated with the responsibility to provide office and common purpose space to all other federal departments and certain agencies. This is accomplished via a federal portfolio of properties that includes a very large number of leased properties and premises. PWGSC also leases out (lets) space, such as commercial space in its office complexes, or excess space or properties.

1.3 One federal department cannot contractually lease property to another. PWGSC has created an administrative process that makes use of Occupancy Instruments (OIs), to define the relationship between itself and departments occupying space or real property in PWGSC assets (Owned or Leased). OIs are based on market rents.

1.4 The Valuation Program has developed three key reports in support of federal leasing and letting transactions. While these reports, which are further defined in this guideline, were initially designed in order to support PWGSC's Accommodation Program, they also are applicable in support of the leasing and letting activities of other organizations that are clients of the Valuation Program.

2.0 Reports in Support of Leasing/Letting Activities

2.1 The Real Estate Service Management (RESM) Directorate describes the requirements for obtaining valuations in support of letting activities in the document "Commercial and Retail Letting Manual". RESM describes the parallel requirements for leasing activities in the document "Procedure on Estimating Market Rent". Market rent is defined^{Footnote 2}:

• The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations; the lessee and lessor each acting prudently and knowledgeably, and assuming consummation of a lease contract as of a specified date and the passing of the leasehold from lessor to lessee under conditions whereby:
  1. Lessee and lessor are typically motivated.
  2. Both parties are well informed or well advised, and acting in what they consider their best interests.
  3. A reasonable time is allowed for exposure in the open market.
  4. The rent payment is made in terms of cash in [Canadian] dollars, and is expressed as an amount per time period consistent with the payment schedule of the lease contract.
  5. The rental amount represents the normal consideration for the property leased unaffected by special fees or concessions granted by anyone associated with the transaction.

2.2 The Valuation Program has developed three products in support of leasing and letting transactions: Market Analysis Report (MAR), Market Survey Report (MSR) and Space Availability Report (SAR).

2.3 A Market Analysis Report (MAR) is a report that estimates the market rent for a very specific defined requirement in a small geographic area; or, more typically, for space in one subject property. Market rent in MARs is normally expressed as a rate (dollars per square metre), supported by market data and analysis. MARs satisfy the Treasury Board requirement to have at least one estimate in support of leasing and letting transactions.

MARs can be in narrative, form, or attestation formats. Typically, form or attestation MARs are done only by in-house, PWGSC personnel.

• 2.3.1 Treasury Board also requires Departments to ensure the segregation of transaction and valuation responsibilities and that these responsibilities are clearly communicated.^{Footnote 3} Such segregation for PWGSC in the leasing context is defined in the "Procedure on Estimating Market Rent (in Support of Lease Transactions)".
• 2.3.2 MARs provide estimates of "effective" market rent^{Footnote 4}.
• 2.3.3 Generally, all the comparable leases used in MARs shall be leases where the Department is not one of the parties. In exceptional circumstances, where it is impossible to obtain a sufficient number of such comparable leases, one may be where PWGSC was one of the parties to the lease.

2.4 The Market Survey Report (MSR) provides details on market rental rates for one or more geographic areas, market segments, and types of property or space. The MSR must be based on sound valuation principles, such as supply and demand, change, substitution, consistent use, highest and best use, etc., and include:

1. a definition of the type(s) of space and of the geographic area(s) under study, as well as the period for which the conditions apply. This may require the definition and analysis of market-defined segments, or submarkets, of a geographic area. For example, if the geographic area is a city, there may be submarkets such as the central business district or downtown core, periphery to the core, and suburban markets - each with its own economic and other influences, and for which separate analyses and market rental rates would apply;
2. an analysis of economic, social and political trends affecting the availability, value and leasing of real estate, as well as real estate development cycles and building costs;
3. a description and analysis of the urban districts forming the area under study, including transportation facilities, as well as social and economic considerations;
4. a description and rental valuation analysis of negotiated leases, by category;
5. a listing of present and forecasted rental and lease data; and,
6. rental rate estimates and ranges, with supporting rationale.

The terms of reference for the MSR should define the geographic area(s) and property type(s) to be included in the MSR. The terms of reference must require that the report contain an opinion, with supporting data and analysis, of the market rental rate range(s) for the property type(s) and geographic areas requested.

An MSR may address a single geographic area and a variety of property types, a single property type over a wide geographic area (e.g. all small communities within a province or a defined region within a province), or a combination of geographic areas and property types. An MSR is normally completed in narrative format.

An MSR may be used for various property types or locations but it is incumbent on the user of the report to validate with the Valuation Program that the information used to support the transaction is in line with the subject's location/property type.

2.5 A Space Availability Report (SAR)^{Footnote 5} is a report that lists all properties for rent that satisfy the defined requirements. This is an inventory listing of what exists for rent (or sale) in the market, at a defined point in time that will satisfy the federal demand. A SAR does not provide estimates of market rent. Real estate professionals, other than valuation agents, can complete a SAR. A SAR is normally completed in narrative format.

2.6 Table 1 provides a quick reference defining and comparing MARs, MSRs and SARs.

2.7 When commissioning these reports from the private sector, the contract or purchase order must specify the designated appraiser or analyst who is under taking the work. Only the designated appraiser or analyst may sign the report.

This table defines and compares the three products (MARs, MSRs and SARs) in support of leasing and letting transactions.

	MAR	MSR	SAR
Purpose	To estimate market rent.	To estimate market rent.	To indicate what properties are available for lease (or sale), and at what asking price – that will satisfy the project requirements.
Functions	Provides specific project requirement or subject property input to Investment Analysis Reports (IARs), Commercial Letting Plans (CLPs), and Strategic Marketing and Positioning Plans (SMPPS).	Provides broad market input to Investment Analysis Reports (IARs). Source document for MARs in general, and especially for attestation MARs.	Provides general market input to IARs and options analyses.
	Provides support for individual leasing or letting transactions.	Information can be extracted and used in MARs.	Identifies properties available for lease (or sale) in the market, that would satisfy the project requirements.
	Used for planning purposes.	Used for planning purposes.	Used for planning purposes.
	Provides a basis for market rent for OIs.	Provides a basis for market rent for OIs.	Used to indicate asking rent, which is usually not the same as market rent.
Context	Provides an estimate of market rent for a specific lease or letting transaction, based on negotiated rent transactions.	Provides overview of negotiated rents.	Provides overviews and information on market trends, asking rates and/or space availability for one or more categories of space, market segments and/or given geographic area.
	A specific subject property is normally indentified.	Relevant to several potential lease projects.	Not relevant to a  specific lease or letting transaction, but  has defined requirements or project parameters.
Format	Narrative report for higher value transactions. Form report or attestation for lower value transactions.Footnote 6	Narrative report	Narrative report
Typical Table of Contents or Format	Appendix 1a – Narrative Report.  Appendix 1b – Form Report.  Appendix 1c - Attestation	Appendix 1	Appendix 2
Lease Requirements	Specific property is known.	General, broad, market segment or geographic focus. Can be used to support market rent for many lease projects.	General project requirements and market segment or geographic focus are known.
Who can complete?	MAR Narrative or Form - A professionally designated valuation expert. MAR Attestation - “A person experienced in real estate that is established in a real estate-related business (such as appraisal, brokerage, banking), or is employed in the federal public service with appropriate qualifications.”Footnote 7	A professionally designated valuation expert.	“A person experienced in real estate that is established in a real estate-related business (such as appraisal, brokerage, banking), or is employed in the federal public service with appropriate qualifications.”Footnote 8 A SAR need not be completed by a professionally designated valuation expert.

3.0 Developers' Approach to Estimating Market Rent

3.1 If there is no available space or development that meets the requirements, a developers' approach may have to be applied to represent the rental rate associated with the cost to create the required space.

For this purpose, it may be necessary to estimate both market rent and economic rent, as of a future date of lease commencement. In this context, economic rent would be expressed as the rate per square metre (net rentable area) that would have to be generated in order to make the cost to construct the space (building) financially viable. Economic rent may or may not equate to market rent. If the requirements are unique, for which there are no comparable properties in the market, it may not be possible to estimate or forecast market rent. If this is the situation, then economic rent can be considered a reasonable proxy for market rent, or the space satisfying the special requirements would not be created.

3.2 The formula associated with the developers' approach to estimating economic rent is a simple one:

Economic Rent = Total Cost of Development × Developer's Required Yield
(Typically, the total cost of development is expressed in terms of $/m² net rentable.)

While the formula is simple, the inputs and analysis to develop the rental rate estimate are not.

3.3 The steps to applying the developers' approach are as follows:

1. Estimate the current costs of development (land and buildings), essentially applying the cost approach to value. This is normally stated in terms of $/m² net rentable.
2. Adjust the current costs to the future date of lease commencement to give the forecasted cost of development
3. Estimate the developer's annual yield rate, also known as the rental factor. The yield rate must be appropriate to the duration of the lease, and any reversionary value at the end of the lease.
4. Multiply the forecasted cost of development by the developer's annual yield rate. This will give an indication of the net effective economic rent as of the lease commencement date.
5. If gross effective economic rent is required, then the annual operating costs and taxes associated with the property are estimated (also stated as $/m² net rentable), projected to the lease commencement date, and added to the net effective economic rent estimate.

3.4 The developers' approach may be included in a MAR or an MSR. Reports estimating economic or market rent employing the developers' approach must include details to explain and justify all essential elements of the analysis - current costs and rates of return, projection factors (i.e. escalation factors in a market where costs and values are increasing), developer's yield rate, etc. All key assumptions and limiting conditions, whether included in the valuation terms of reference or applied by the valuation expert during the analysis process, must be clearly stated in the report.

Appendix 1a: Market Analysis Report (MAR) - Narrative
Format/Contents

Note: This appendix attempts to provide a comprehensive list of the contents of a narrative MAR, all of which may not be applicable for specific projects.

1.0 Introduction

1.1 Title Page

• 1.1.1 Name of the person to whom the market analysis report is addressed
• 1.1.2 Description of the subject property or specific requirements covered by the market analysis
• 1.1.3 Name of the analyst responsible for preparing the report

1.2 Letter of Transmittal

• 1.2.1 Date and source of authorization to prepare the market analysis
• 1.2.2 Identification of the real property interest analyzed
• 1.2.3 Definition of the lease requirements (including any options)
• 1.2.4 Effective date of the market analysis
• 1.2.5 Any relevant information or assumptions that need to be drawn to the attention of the reader
• 1.2.6 Market rental rate conclusion, for each option analyzed. The conclusion should be expressed as a range. Ideally, the conclusion will include estimates of net rent, operating and maintenance expenses (O&M), taxes and gross rent.
• 1.2.7 Signature of the analyst

1.3 Table of Contents

• 1.3.1 Required for most narrative reports containing numerous pages

1.4 Photographs

• 1.4.1 If there is a specific subject property, as many photographs as may be necessary to give a good visual description of the subject property

1.5 Executive Summary

• 1.5.1 A concise, one-page summary of the findings

1.6 Statement of Limiting Conditions and Critical Assumptions

• 1.6.1 Any limiting conditions and assumptions upon which the rental rate estimate or range is based (This is particularly important if the analyst is required to forecast the market rent as of a future date.)

2.0 Factual Data

2.1 Definition of the Problem

2.2 Purpose of the market analysis (to estimate market rent, normally expressed as a market rental rate range, appropriate to the lease project requirements, including any options)

• 2.2.1 If the purpose is to also forecast the market rent as of a future date, state that date.

2.3 Function of the market analysis

• 2.3.1 Basis for market rate defined, usually annual gross effective rent and/or annual net effective rent per square metre of space, by type of space

2.4 Effective date(s) of the market analysis

2.5 Include definitions of relevant rental rate terms used in the report (such as face, net face, effective, net effective, triple net, absolute net, gross, etc.)

3.0 Space Requirement

3.1 Subject property identification (or specific requirement definition)

3.2 Area(s), by type of space, including parking

3.3 Configuration

3.4 Hours of operation

3.5 Geographic boundary and location considerations (for specific requirements)

3.6 Lease Terms and Conditions

• 3.6.1 As per standard federal lease, or as may be modified
• 3.6.2 Term of the lease
• 3.6.3 Options, as applicable - to renew, purchase (right of first refusal), expand, etc.
• 3.6.4 In-service date
• 3.6.5 Operational and security requirements
• 3.6.6 Other special terms and conditions

4.0 Scope

4.1 Description of the methods used to gather market information

4.2 Identification of the sources of all information

5.0 Market Overview

5.1 Overview of market conditions at the effective date of the study, including relevant information, such as:

• 5.1.1 Overview of local economy
• 5.1.2 Current and projected social, economic and political trends impacting the real property leased market, including demographics and employment levels
• 5.1.3 Pertinent municipal objectives relating to real estate development and the leased market for the subject type(s)
• 5.1.4 Federal presence
• 5.1.5 Indication of the extent of inducements being offered
• 5.1.6 Market discount rates that may be used to convert face rent plus incentives to a level, annual effective rental rate
• 5.1.7 Current construction activity
• 5.1.8 Transportation availability
• 5.1.9 Supply and demand trends, including:
  1. Total office, warehouse, etc. space surveyed
  2. Availability of blocks of space equal to or larger than the requirement
  3. Any known or planned construction (size, location and anticipated in-service date) or activity that will have a significant impact on the space inventory
  4. Absorption and vacancy rates
  5. Current rent levels, recently negotiated leases and current asking rates

5.2 Market forecasts and future trends

• 5.2.1 Forecast of vacancy and absorption rate trends
• 5.2.2 Forecast of trends in rent levels
• 5.2.3 Forecast of construction activity
• 5.2.4 Forecast of supply of available vacant space by size
• 5.2.5 Forecast of demand from other levels of government or private sources

6.0 Property Description

6.1 Location, setting

6.2 Surrounding uses

6.3 Access

6.4 Amenities

6.5 Site data

6.6 Building/space data

6.7 Land use controls

6.8 Assessment information

7.0 Market Analysis

It is acknowledged that it may not be possible to include detailed information from owners and tenants in the report due to confidentiality constraints. Include as much of the following information in the report as possible. Also, for review purposes, sufficient details should be made available, in confidence, as may be required by the reviewer.

7.1 Details on each comparable lease analyzed, with data provided as follows:

• 7.1.1 Name and address of building
• 7.1.2 Year of construction (or of any major additions)
• 7.1.3 Photograph(s) of exterior
• 7.1.4 Photographs of interior, if possible.
• 7.1.5 Brief description of neighbourhood, setting of the property, comparison to the geographic area of the lease project requirements
• 7.1.6 Zoning
• 7.1.7 Proximity to transportation services
• 7.1.8 Brief building description, including class of space (e.g. A, B, C)
• 7.1.9 Statement of the type of construction
• 7.1.10 Equipment, services provided
• 7.1.11 Type of parking facility, number of stalls
• 7.1.12 Whether it meets the standard government lease and accommodation standards
• 7.1.13 Type of tenants within the building
• 7.1.14 Contact - owner or leasing agent (name, title, phone number, address)
• 7.1.15 Assessment
• 7.1.16 Rentable area under lease, method of measurement
• 7.1.17 Term of lease, options to renew, options to purchase
• 7.1.18 Rental rate, indicate any variance by year, renewal option rates
• 7.1.19 Operating and maintenance costs, escalation rates if indicated in lease
• 7.1.20 Property taxes, escalation rates if indicated in lease
• 7.1.21 Incentives offered in lease, such as rent free periods, cash incentives, fit-up allowances, etc.
• 7.1.22 Map showing location of comparable property with respect to the geographic area of the requirements
• 7.1.23 Indicate whether new lease or renewal

8.0 Analysis and Conclusion

8.1 An analysis to justify the market rent for the subject requirement

• 8.1.1 To be completed in a narrative style, typical of narrative appraisal reports
• 8.1.2 Summary of the data on each comparable, focusing on the similarities and differences compared to the requirements that are likely to have an impact on the market rent
• 8.1.3 Definition of rent - net, gross, etc., and comparison to the requirements (typically, annual net effective and annual gross effective)
• 8.1.4 Analysis of each comparable lease in relation to the subject requirements
• 8.1.5 Analysis of the differences between each comparable lease and the subject requirements
• 8.1.6 Description of adjustments applied to each comparable lease. Consideration should be given for adjustments due to factors such as:
  • 8.1.6.1 Time (effective date)
  • 8.1.6.2 Lease term
  • 8.1.6.3 Size
  • 8.1.6.4 Location (within market and within building)
  • 8.1.6.5 Quality and amenities
  • 8.1.6.6 Base building
  • 8.1.6.7 Measurement standards
  • 8.1.6.8 Renewal versus new lease rates
  • 8.1.6.9 Any other factors impacting market rent
  • 8.1.6.10 Justification of all adjustments, their amounts, and any assumptions
  • 8.1.6.11 Adjustment for incentives, if necessary, so that the analysis reflects annual gross (and/or net) effective rents
  • 8.1.6.12 Adjustment chart summarizing the adjustments and their application as dollar, percentage or decimal adjustments
  • 8.1.6.13 Narrative evaluation of the results of the adjustment process
• 8.1.7 If a future rental rate range is required, include an analysis based on the market forecast and future trend information presented in the report, to support the projected rental rate range and time adjustment applied to project the current rental rate range to the future date

9.0 Final estimate of market rent

9.1 An estimate of market rent is required for each category of space listed in the requirements. If ancillary space, such as parking or storage, is normally included in the office rate of that particular market, this should be clearly indicated. Even so, a stand-alone rate for each type of ancillary space is normally required.

9.2 The final estimate of market rent will indicate estimated values for both the date of the analysis, as well as the date of the future project, if applicable.

9.3 Market evidence, along with a brief explanation, must be included to support the final estimate of market rent. It is expected that the rental rate range is concluded within the range established by the adjusted market comparables. If this is not the case, the report must include a strong justification for concluding otherwise.

10.0 Certification

10.1 A one-page certification by the analyst should be included in the report. The format and content is typically dictated by the standards of the professional organization to which the analyst belongs. As a minimum, the certification should contain the following:

• 10.1.1 Statement that the analyst has no interest, present or contemplated, in the project that is the subject of the analysis
• 10.1.2 Statement of personal inspection of the subject property (if identified), and comparables, indicating the date of inspection
• 10.1.3 Statement that, "to the best of my knowledge and belief, all statements and information in the report are true and correct, subject to the limiting conditions and assumptions stated elsewhere in the report"
• 10.1.4 Statement that "No important facts have been knowingly withheld or overlooked"
• 10.1.5 A statement of the final conclusion of the report and the associated effective date(s)
• 10.1.6 Signature and date of signature

11.0 Addenda

11.1 Data sheets on each comparable lease, containing the information defined above, may be included in the addenda if not in the body of the report

11.2 Photographs of the comparable lease properties

11.3 Map showing the location of each comparable lease property in comparison to the geographic boundaries of the requirements, or specific subject property

11.4 Any other supporting data, such as statistics, tables, charts, etc.

12.0 Analyst's Qualifications (Optional)

12.1 Academic qualifications, degrees, designations, memberships

12.2 Relevant practical experience

Appendix 1b: Market Analysis Report (MAR) - Form
Format/Contents

PWGSC has developed a form report that may be provided to the valuation expert, upon request. Regions may develop their own form report, or may accept those proposed by the valuation expert, as long as the form report contains the information listed below as a minimum requirement:

When a form MAR is completed by in-house personnel, the discount rate used to adjust for incentives or other factors should be provided by the Valuation Program.

Minimum requirements, MAR Form:

1. Effective date
2. Purpose and function of report
3. Definition of market rent
4. Summary of requirements, including lease area
5. List of landlord and tenant responsibilities
6. Checklist indication of relevant market rates and trends (vacancy rates, supply, demand, rental rates, expense costs or ratios, etc.)
7. Brief description of area and neighbourhood
8. Identification of subject building
9. Relevant details on subject property (physical and financial, including operating expense level)
10. Data sheet(s) for each comparable (may be appended; or all may be summarized in a table combined with the lease adjustment chart)
11. Comparable lease adjustment chart,
12. Concise analysis of the data supporting the rental rate range conclusion
13. Table showing rental rate range conclusion (s)
14. Scope (methodology, sources of information)
15. Limiting conditions and critical assumptions
16. Certification, statement of compliance with professional standards
17. Signature and date

Notes:

1. An estimate of market rent is required for each category of space listed in the requirements. If ancillary space, such as parking or storage, is normally included in the office rate of that particular market, this should be clearly indicated. Even so, a stand-alone rate for each type of ancillary space is normally required.
2. The final estimate of market rent will indicate estimated values for both the date of the analysis, as well as the date of the future project, if applicable.
3. Market evidence, along with a brief explanation, must be included to support the final estimate of market rent. It is expected that the rental rate range is concluded within the range established by the adjusted market comparables. If this is not the case, the report must include a strong justification for concluding otherwise.

Appendix 1c: Market Analysis Report (MAR) - Attestation
Format/Contents

Project Number: Planned In-Service Date:

File Number: Subject Property:

Project Description:
This includes the occupant identification, the space requirements, the type and amount of space required, description of the geographical perimeter, and any special space features.

Limiting Factors and Special Conditions:
In a number of situations, space needs may be of such a special nature that many market comparables may not exist or be suitable. This section should be used to describe those factors, if any.

Market Overview and Trends:
This includes a brief description of pertinent market factors and trends, with summary data on such elements as vacancy and absorption rates, availability of comparable space, proposed developments, etc.; stating the source of the information.

Representative Examples:
In most situations, three representative comparables of market rents should be identified with basic data briefly stated (building identification, area, rental rate, costs included in the rate, incentives). Any adjustments made to the representative examples should be briefly described. A qualitative or narrative adjustment analysis should be performed whereby, as a minimum, the analyst should indicate for each adjustment factor, whether the comparable is considered superior or inferior to the requirements, requiring either a downward or upward adjustment, respectively. If there are insufficient comparables, the analyst must provide a brief, point-form rationale for the rental rate range conclusion. State the source of information on each comparable (e.g. market survey report (MSR) or space availability report (SAR) giving the reference number, internet web site, leasing agent, property owner, etc.). When the MAR attestation is completed by in-house personnel, the discount rate used to adjust for incentives or other factors should be provided by the Valuation Program.

1.
2.
3.

Market Rental Rate Range^{Footnote 9}: $   /m² to $   /m²

For each space category described in the requirements, enter the conclusion of the effective rental rate as a narrow range, from lowest to highest. While the range will vary by market, as a rule of thumb, +/-10% is often displayed. When the function of the MAR is to provide a rental rate range for an Occupancy Instrument, the analyst must indicate the most likely rental rate within the defined range.

Qualifying Comments:
Indicate any limiting conditions or critical assumptions inherent in the rental rates quoted. Note the interest and discount rates utilized for adjustments, and their source.

Prepared by:

Name (Printed):

Signature

Date

Appendix 2: Market Survey Report (MSR)
Typical Table of Contents

Note: This appendix attempts to provide a comprehensive list of the contents of an MSR, all of which may not be applicable for specific projects.

1.0 Introduction

1.1 Title Page

• 1.1.1 Name of the person to whom the market survey report is addressed
• 1.1.2 Description of the subject of the report
• 1.1.3 Name of the analyst responsible for preparing the report

1.2 Letter of Transmittal

• 1.2.1 Date and source of authorization to prepare the market survey report
• 1.2.2 Identification of the geographic area(s), market segment(s) and property or space type(s)
• 1.2.3 Effective date of the market survey
• 1.2.4 Any relevant information or assumptions that need to be drawn to the attention of the reader
• 1.2.5 Indicated market rental rate range by geographic area(s), market segment(s) and property or space type(s). This should be presented in a table or chart.
• 1.2.6 Signature of the analyst

1.3 Table of Contents

1.4 Map of the geographic area(s)

1.5 Executive Summary

1.6 Statement of Limiting Conditions and Critical Assumptions

• 1.6.1 Any limiting conditions and assumptions upon which the rental rate range is based

2.0 Factual Data

2.1 Definition of the Problem

2.2 Purpose and function of the market survey report

2.3 Effective date of the market survey report

2.4 Include definitions of relevant rental rate terms used in the report (such as net face, net effective, triple net, absolute net, gross, etc.)

3.0 Space Requirement (expressed in broad terms)

3.1 Geographic area(s), market segment(s) and property or space type(s) [repeat from the Terms of Reference]

3.2 Area(s), by type of space, including parking

3.3 Configuration

3.4 Hours of operation

3.5 Typical Lease Terms and Conditions

• 3.5.1 As per standard federal lease, or as may be modified
• 3.5.2 Term of the lease
• 3.5.3 Options, as applicable - to renew, purchase (right of first refusal), expansion
• 3.5.4 In-service date
• 3.5.5 Operational and security requirements
• 3.5.6 Other special terms and conditions

4.0 Scope

4.1 Description of the methods used to gather market information

4.2 Identification of the sources of all information

5.0 Market Overview (with details appropriate to each geographic area, market segment or type of space)

5.1 Overview of market conditions at the effective date of the study, including relevant information, such as:

• 5.1.1 Overview of local economy
• 5.1.2 Current and projected social, economic and political trends impacting the real property leased market, including demographics and employment levels
• 5.1.3 Pertinent municipal objectives relating to real estate development and the leased market
• 5.1.4 Total office, warehouse, etc. space surveyed
• 5.1.5 Federal presence
• 5.1.6 Availability of blocks of space equal to or larger than the requirements
• 5.1.7 Current rent levels, recently negotiated leases and current asking rates
• 5.1.8 Indication of the extent of inducements being offered
• 5.1.9 Market discount rates that may be used to convert face rent plus incentives to a level, annual effective rental rate
• 5.1.10 Current construction activity
• 5.1.11 Transportation availability
• 5.1.12 Supply and demand trends, including:
• 5.1.13 Any known or planned construction (size, location and anticipated in-service date) or other activity which will have a significant impact on the space inventory
• 5.1.14 Absorption and vacancy rates

5.2 Market forecasts and future trends

• 5.2.1 Forecast of vacancy and absorption rate trends
• 5.2.2 Forecast of trends in rent levels
• 5.2.3 Forecast of construction activity
• 5.2.4 Forecast of supply of available vacant space by size
• 5.2.5 Forecast of demand from other levels of government or private sources

6.0 Definition of the Geographic Area(s), Market Segment(s) and Property or Space Type(s)

[Practical interpretation and application based on the terms of reference.]

7.0 Market Analysis - For Each Geographic Area(s), Market Segment(s) and Property or Space Type(s)

It is acknowledged that it may not be possible to include detailed information from owners and tenants in the report due to confidentiality constraints. Include as much of the following information in the report as possible. Also, for review purposes, sufficient details should be made available, in confidence, as may be required by the reviewer.

7.1 Details on each comparable lease analyzed, with data provided as follows [One-page data sheets on each comparable grouped by geographic area, market segment and property or space type, should be included here or in the addenda.]:

• 7.1.1 Name and address of building
• 7.1.2 Year of construction (or of any major additions)
• 7.1.3 Photograph(s) of exterior
• 7.1.4 Photographs of interior, if possible
• 7.1.5 Brief description of neighbourhood, setting of the property, comparison to the geographic area of the lease project requirements
• 7.1.6 Zoning
• 7.1.7 Proximity to transportation services
• 7.1.8 Brief building description, including class of space (e.g. A, B, C)
• 7.1.9 Statement of the type of construction
• 7.1.10 Equipment, services provided
• 7.1.11 Type of parking facility, number of stalls
• 7.1.12 Whether it meets the standard government lease and accommodation standards
• 7.1.13 Type of tenants within the building
• 7.1.14 Contact - owner or leasing agent (name, title, phone number, address)
• 7.1.15 Assessment
• 7.1.16 Rentable area under lease, method of measurement
• 7.1.17 Term of lease, options to renew, options to purchase
• 7.1.18 Rental rate, indicate any variance by year, renewal option rates
• 7.1.19 Operating and maintenance costs, escalation rates if indicated in lease
• 7.1.20 Property taxes, escalation rates if indicated in lease
• 7.1.21 Incentives offered in lease, such as rent free periods, cash incentives, fit-up allowances, etc.
• 7.1.22 Map showing location of comparable property with respect to the geographic area of the requirements
• 7.1.23 Indicate whether new lease or renewal.

8.0 Analysis and Conclusion

8.1 An analysis to justify the market rental rate range for each geographic area, market segment and property or space type. Maximum use should be made of tables and charts to convey the information analyzed and market rental rate indication(s).

• 8.1.1 To be completed in a narrative style, typical of narrative appraisal reports
• 8.1.2 Summary of the data on each comparable, focusing on the similarities and differences compared to the requirements that are likely to have an impact on the market rent
• 8.1.3 Definition of rent - net, gross, etc., and comparison to the requirements (typically, annual gross effective)
• 8.1.4 Analysis of each comparable lease in relation to the subject requirements
• 8.1.5 Analysis of the differences between each comparable lease and the subject requirements
• 8.1.6 Description of adjustments applied to each comparable lease. Consideration should be given for adjustments due to factors such as:
  • 8.1.6.1 Time (effective date)
  • 8.1.6.2 Lease term
  • 8.1.6.3 Size
  • 8.1.6.4 Location (within market and within building)
  • 8.1.6.5 Quality and amenities
  • 8.1.6.6 Federal base building
  • 8.1.6.7 Measurement standards
  • 8.1.6.8 Renewal versus new lease rates
  • 8.1.6.9 Any other factors impacting market rent
  • 8.1.6.10 Justification of all adjustments, their amounts, and any assumptions
  • 8.1.6.11 Adjustment for incentives, if necessary, so that the analysis reflects annual gross (and/or net) effective rents
  • 8.1.6.12 Adjustment chart summarizing the adjustments and their application as dollar, percentage or decimal adjustments
  • 8.1.6.13 Narrative evaluation of the results of the adjustment process
• 8.1.7 If a future rental rate range is required, include an analysis based on the market forecast and future trend information presented in the report, to support the projected rental rate range and time adjustment applied to project the current rental rate range to the future date

9.0 Final estimate of market rent range(s)

9.1 An estimate of market rent is required for each category of space listed in the requirements. If ancillary space, such as parking or storage, is normally included in the office rate of that particular market, this should be clearly indicated. Even so, a stand-alone rate for each type of ancillary space is normally required.

9.2 The final estimate of market rent will indicate estimated values for both the date of the analysis, as well as the date of the future project, if applicable.

9.3 Market evidence, along with a brief explanation, must be included to support the final estimate of market rent. It is expected that the rental rate range is concluded within the range established by the adjusted market comparables. If this is not the case, the report must include a strong justification for concluding otherwise.

10.0 Rental Rate Projection

10.1 Include, with supporting analysis, a table that provides a forecast of the percentage future rate of change for each rental rate range provided. Normally, an annual rate of change is required, for a maximum of five years.

11.0 Certification

11.1 A one-page certification by the analyst should be included in the report. The format and content is typically dictated by the standards of the professional organization to which the analyst belongs. As a minimum, the certification should contain the following:

• 11.1.1 Statement that the analyst has no interest, present or contemplated, in the project that is the subject of the analysis
• 11.1.2 Statement of personal inspection of the subject property (if identified), and comparables, indicating the date of inspection
• 11.1.3 Statement that, "to the best of my knowledge and belief, all statements and information in the report are true and correct, subject to the limiting conditions and assumptions stated elsewhere in the report"
• 11.1.4 Statement that "No important facts have been knowingly withheld or overlooked"
• 11.1.5 A statement of the final conclusion of the report and the associated effective date(s)
• 11.1.6 Signature and date of signature

12.0 Addenda

12.1 Data sheets on each comparable lease, containing the information defined above, may be included in the addenda if not in the body of the report

12.2 Photographs of the comparable lease properties

12.3 Map showing the location of each comparable lease property in the context of the geographic boundaries.

12.4 Any other supporting data, such as statistics, tables, charts, etc.

13.0 Analyst's Qualifications (Optional)

13.1 Academic qualifications, degrees, designations, memberships

13.2 Relevant practical experience

Appendix 3: Space Availability Report (SAR)
Typical Table of Contents

Note: This appendix attempts to provide a comprehensive list of the contents of a SAR, all of which may not be applicable for specific projects.

1.0 Introduction

1.1 Cover page

1.2 Letter of transmittal

1.3 Table of contents

1.4 Terms of reference

1.5 Limiting conditions

2.0 Survey Parameters

2.1 Purpose and function of the survey

2.2 Effective date

2.3 Space (or site, if vacant land) requirements

2.4 Geographic boundaries

2.5 Area map - showing geographic boundaries and all properties listed in the survey

2.6 Scope - sources of information

3.0 Market Overview (Brief)

3.1 Factors relevant to the market's ability to satisfy the survey parameters

4.0 Survey Summary

4.1 Can be in chart form, listing all properties found with summary information on each

4.2 By type of space, as required

4.3 Data sheets on each property satisfying the survey parameters can be included here, or in the appendix.

5.0 Appendix

5.1 Data sheet on each property satisfying the survey parameters

• 5.1.1 Picture
• 5.1.2 Address, building name
• 5.1.3 Building classification (e.g. A, B, C)
• 5.1.4 Area, including contiguous space available
• 5.1.5 Asking price
• 5.1.6 Incentives, if applicable
• 5.1.7 Average floor plate size
• 5.1.8 Number of floors
• 5.1.9 Location
• 5.1.10 Zoning
• 5.1.11 Assessment
• 5.1.12 Amenities (parking, storage space, etc.)
• 5.1.13 Public transit
• 5.1.14 Agent/contact person

6.0 Certification

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