In the property development sector, gross development value is a term that developers and investors consistently use when discussing valuation metrics. The GDV of any given property can be arrived at with a simple formula, giving a reasonably reliable idea of how much a property development endeavour might be worth in the future.
In fact, with in-depth insights and industry-leading expertise at your disposal, you can draw up a surprisingly accurate projection of the future open market value of your investment, provided all the objectives laid out in your project development plan.
GDV is used as a key metric when it comes to the development appraisal process. It has huge implications for financial projections for both the pre-acquisition and pre-development phases of your project. If your GDV has been miscalculated with even only a slight error, those important projections can be seriously skewed and project developers are working with a ticking time bomb of a high-risk investment.
Keep an eye on the profit potential of your investment
For those working within the property development sector, the GDV is arguably one of the most important metrics they turn to for assessing the overall capital and rental potential of properties in their portfolio. As previously mentioned, it can also be used to provide a realistic figure for what properties currently in redevelopment might command on the open market. If all the associated data has been correctly collected and applied and the GDV has been correctly calculated, both overall capital and rental projections are easily accessible, underlining the profit potential of a development project.
If you’re looking to achieve as accurate a property valuation as possible, the current economic climate needs to be taken into account. More specifically, consider the more immediate region your property lies in, with current asking prices of properties and data from recently completed transactions of comparable commercial properties an essential reference for the assessment. Once you’ve got gathered references for similar properties in the area, you’ll need to delve into the detail of each property, uncovering what elements command premiums and what shortfalls are holding back the least expensive properties.
Looking to become a commercial property landlord?
There are an increasing number of developers looking to let completed properties. In many cases, commercial rentals can be surprisingly lucrative, especially if the finished premise is delivers a much needed solution for businesses in the local area where adequate alternatives are thin on the ground. Before you secure a commercial property for development as a rental space, make sure you carry out a detailed competitor analysis of other commercials in the area. See what kind of building spec is on offer and whether your own building is up for the task against the competition. You may want to bring in the advice of experts at this point, with seasoned surveyors providing you with the specialist valuation you need to ensure your commercial property will withstand the competition on the local market and ideally, project you a profit. You should then be able to break down how much of a rental income a commercial property will generate each month, week or year.
Using GDR to garner real cost of investment
It might seem relatively simple, but gross development value is an incredibly useful metric that has been specially selected for its association with all manner of other development areas. This cornerstone component of a development project accrues all manner of added costs, including the purchasing of buildings or land plots themselves, not to mention the hiring of construction teams to carry out any advanced building and expansion on site. You can also see how much a developer can look to enjoy as a fee for their work after essential costs have been removed from the overall financial outcome.
Using the Residual Method of Appraisal
When it comes to GDV metric, the residual method of development appraisal is used. There are two key approaches here.
The first approach sees you subtract the combined cost of construction and building, fees and transactions, plus the overall developer profit needed from the gross development value. The resulting value corresponds with the purchase price of land or property acquisition.
An alternative approach assesses the profit of the property. Here, you subtract construction and building costs, fees and transaction amounts, plus land costs from the GDV. The resulting number then corresponds to the required property developer profit. For property developers, this is the go-to formula. Not only does it demonstrate a clear oversight of viability of a project, it offers them a personal projection on what kind of income they can look forward to after a development project has been completed successfully.
Get in touch for expert advice
If you’re looking to capitalise on the UK commercial property market, it pays to speak to the experts to discuss potential prospects and pitfalls. We’ll help break down the needs of your business, aid you through competitive analysis and toward the ultimate purchase itself.
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