A note on zoning

The analysis of shop rental values

It is common sense, as well as an established standard of valuation, that the front of a shop – the part seen by passers-by – is worth more than the back. It follows from this that a shop with 15m of frontage and a depth of 8m commands a higher rent than a shop of 8m frontage and depth of 15m.

The method valuers have developed to deal with this is called zoning. The principle of zoning is that the front band of space is valued at one rate, the next band at half that, and so on.

Though all valuers agree on the principle, the detailed analysis can vary from valuer to valuer. My own approach, which I believe to be the commonest, is to take the first three bands – called Zone A, Zone B and Zone C – at 6m depths into the shop, call all remaining areas of the shop Zone D, and value ancillary space on an ad-hoc basis. If the amount of Zone D is relatively small, I would throw Zone D into Zone C.

I treat Zone B as having half the value per square metre that Zone A commands, Zone C a quarter of the value of Zone A, and Zone D one eighth. This idea is sometimes expressed thus:

Zone

Value ITZA *

A A
B A/2
C A/4
D A/8
Basement A/10

* meaning expressed “in terms of Zone A”

A highly simplified example

Take a shop with 5m of frontage to the street, and a depth of 25m. There are 4 zones in such a shop, according to my method, and they analyse as follows:

Zone

Measures

Actual (m2)

ITZA (m2)

A 5.0 x 6.0 30.0 30.0
B 5.0 x 6.0 30.0 15.0
C 5.0 x 6.0 30.0 7.5
D 5.0 x 7.0 35.0 4.4
125.0 56.9

If I now find that there is reliable evidence from other transactions to support a rate of, say £1,000/m² ITZA, then I value this shop at £56,900 per annum. Of course, I must have analysed the comparables by exactly the same method, or, in a saying common among valuers, “as you value, so must you devalue”.