The valuation department may not be the most visible part of the company, but it is nonetheless ‘strategic and indispensable’. The team assists JLL’s clients in the valuation of real estate assets or portfolios, regardless of the type of asset, whether it be a documented valuation in the context of acquisition or disposal projects, real estate development, financial reports, financing, etc.

In an interview, Greet Hex talks about JLL’s business and the challenges in an environment where rising interest rates and inflation are crippling the investment market.

Marc Fassone: Tell me about your business: what is the purpose of valuation advisory?

Greet Hex: It’s about determining the market value of a property at a given time. Our job is to put a property in the context of today’s market in order to decide on its value. Both its market value and its rental value.

How do you establish the value of a property?

We specialise in commercial properties. And for these properties, it is the rental value and the yield that are the two most important parameters.

Our starting points are the rent and the ‘theoretical’ market yield. Then we make adjustments in relation to the current leases--not all of which are necessarily at market price--and the necessary investments for the owner, as well as costs taken up by the owner, such as marketing costs, the cost of vacancies, etc.

Sustainable development issues have entered the real estate market in recent years. How does this factor into your calculations?

ESG-compliant buildings rent and sell for more than non-sustainable ones. This is now well established, although it is sometimes still debatable if we should refer to a ‘green premium’ or a ‘brown discount’. We take this into account in our assessments.

The advantage for a tenant of leasing such areas is the possibility of lowering the total amount of their lease. This includes the rent and other costs such as energy. They are willing to put more into rent if their overall costs go down. In addition, companies also have ESG strategies to be followed. We always ask landlords where they are in their ESG journey and what certificates they hold.

ESG also has an impact on the resale price. But this can require a lot of investment. Investors are very careful about this.

Are the values you give absolute values or indicative values that may vary more or less rapidly over time?

The value we give is a market value at a given time. The definition of market value is specified in the Rics as follows: ‘The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’

Now, we would never say that our estimate is the absolute truth. Besides, from one person to another, the value can differ.

Is the current context of inflation and rising interest rates leading to a slowdown in real estate activity complicating your task?

Whether the market is doing well or badly, we still have a lot of demand. People always want to know where they stand with their property portfolio.

The current fluctuations in the financial markets have an impact on our valuations. To do this, we need benchmarks of less than three months. The current level of inflation has brought the investment market to a standstill.

Inflation also makes it difficult for us to do valuations. Our way of working is based on capitalisation. Inflation is indirectly reflected in the yield. But now more and more clients want to have valuations based on cash flows and inflation makes the calculations more difficult. In the past, we could simply include 2% inflation in our assumptions and that was the end of it. Those days are over. Now it moves around a lot more and has a real impact.

These fluctuations also have an impact on investors. They can’t buy a property at, say, 3% if they don't know what the final repayment rate will be.

We need to pay more attention today to what is happening in the financial markets. This is something we didn’t do when the market was more stable.

Read the original French version of this interview on the site. This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg, in English and French. .