Glossary of Terms

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Glossary of Property Terms is a joint publication of the Property Council of Australia, Australian Property Institute and Real Estate Institute of Australia. It defines terms commonly used by property professionals.

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An official reduction, allowance or rebate. An abatement pro rata is a proportionate reduction of the amount of each of a number of debts or claims as where a fund or estate is insufficient for repayment of all in full.

Access Rights

The right of ingress to and egress from a property that abuts upon an existing street or highway. Details will be shown on Certificates of Title of both parties granting and receiving the right.

Acquisition Costs

The total cost of acquiring an asset. This may include stamp duty, legal fees, building report, valuation fees, survey fees and any other due diligence costs directly related to the acquisition. Generally allowed for in a discounted cash flow approach, but not in a traditional capitalised income approach.

Actual Cash Value

The price which property will realise on the open market, after all reasonable efforts have been made to secure a purchaser who will pay the highest price. The expression actual cash value as applied to real estate is synonymous to market value.

Ad Valorem

Literally means “in proportion to value”. A tax duty or fee applied at the proportional rate. The total amount payable thus varies with the value or the product, service or property to which it is applied.

Affected Valuation Basis

The value of real estate having regard to the effect of blight or damage to the real estate for whatever reason and normally due to planning considerations (e.g. motorways, airports).


(a) The reduction in the value of an asset by prorating its cost over a period of years. Payment or an obligation in a series of instalments or transfers e.g. conventional home loan or mortgage; (b) The process of recovering, over a period of time, the capital investment through scheduled, systematic repayments at regular intervals. Periodic contributions to a sinking fund to discharge a debt or make a replacement at a future date.

Arm’s Length

(a) A concept that implies the parties involved do not have any special or other business relationship which may influence the concept of a willing buyer / lessor and willing seller / lessee; (b) A transaction is said to be at arm’s length when conducted strictly on a commercial basis, despite mutual association between parties concerned.

Asset Management

A systematic approach to the procurement, maintenance, operation, rehabilitation and disposal of one or more assets which integrates the utilisation of assets and their performance with the business requirements of asset owners or users.

Asset Register

A record of items considered worthy of identification as discrete assets. An asset register includes information about each asset, such as type of construction, technical details, date of acquisition, original cost, accumulated depreciation, written down value, etc.

Asset Valuation

In the real estate market, this expression is applied to the valuation of land, buildings, and/or plant and machinery generally for incorporation into company accounts. In such cases, the ownership of the asset is not necessarily transferred, but the valuation is of interest to shareholders or is required for company takeovers, public listings or mortgages. In other markets, besides the real estate market, this term generally refers to the valuation of an asset for sale, purchase or other purposes.

Assignment Of Contract

Signing over of contract. (Note: liabilities under contract generally cannot be assigned without consent of the other party).


Base Period

A specific time period used as a benchmark for measuring financial or economic data.

Base Year

The year or date to which all future and past benefits and costs are indexed or compared to.

Building Area (Gross)

The total enclosed and unenclosed area of the building at all building floor levels measured between the normal outside face of any enclosing walls, balustrades and supports. The unit of measurement for building areas is the square metre. (For the measurement of floor space for leasing purposes, refer to Method of Measurement published by the Property Council of Australia).



Usually used in negotiating rent review clauses. ‘Cap’ restricts the increase, whereas ‘Collar’ restricts the decrease, in the rent review.

Capital Expenditure (CAPEX)

Those items that are significant replacements or additions to existing properties or for new developments, as distinguished from cash outflows for expense items that are normally considered part of the current period’s operations. Capital expenditure does not include general maintenance and repair items.

Capital Return

The change in capital value between periods less any capital expenditures which may have occurred – it is expressed as a percentage of capital value plus a portion of capital expenditures less any partial sales and less a portion of net income.

Capital Value

The capital sum which a property might in ordinary circumstances be expected to realise at the time of valuation if offered for sale on reasonable terms and conditions. See also Income Return; Capital Return; Total Return.

Capitalisation Rate

Any divisor (usually expressed as a percentage) that is used to convert income into value. The rate or yield at which the annual net income from an investment is capitalised to ascertain its capital value at a given date. The calculations are as follows; property value estimate = net operating income ÷ capitalisation rate.

Capitalised Income Approach

The method of valuation where a yield is applied to an income to assess a market value. Also known as Capitalisation Of Income. See also Capitalisation Rate.


A notice on title proclaiming a possible interest other than that of an owner.

Certificate Of Occupancy / Occupation

A certificate which establishes that a building or major refurbishment project has reached a stage where it complies with all relevant statutory approvals and is ready for occupation.

Certificate Of Practical Completion

A certificate issued to the contractor by the superintendent or the superintendent’s representative when the works under the contract have reached the stage of completion described in the general conditions of contract. Minor omissions or defects that will not inhibit the use of the works are usually accepted. Also known as Notice of Practical Completion.

Certificate Of Title

A document issued by a title office under a Torrens System of Title, showing ownership and interest in a parcel of land.

Certification of Value

Required by some States in a prescribed format for inclusion in the valuation report. In a certification of value, the Valuer affirms that the statements of fact presented (in the report) are correct (to the best of the Valuer’s knowledge); the analyses (and conclusions) are limited only by the reported assumptions; (the Valuer has no – or if so, a specified – interest in the subject property;) the Valuer’s fee is (or is not) contingent upon any aspect of the report; and the Valuer has performed the valuation in compliance with ethical and professional standards. The Valuer may also affirm that the Valuer has completed a programme of professional learning; the Valuer has – or has not – made a personal inspection of the property; and no one, except those specified, has provided assistance in preparing the report.

Certified Practising Valuer (CPV)

A designation of the Australian Property Institute signifying the recipient has the required education and experience to undertake comprehensive valuations.

Ceteris Paribus

Latin phrase, literally translated as “with other things [being] the same,” and usually rendered in English as “all other things being equal.” (Wikipedia)


Any fixed asset other than freehold land. Items such as machinery, implements, tools, furnishings, fittings, which may be associated with land use, but which are not fixed to the land or premises or, if fixed, may be removed without causing structural damage to a building. Legally known as Personalty.

Circulation Space

Spaces provided within a functional area to link together individual rooms or spaces, including areas occupied by internal walls.

Compulsory Acquisition

Where an asset is acquired by a statutory authority through legislation, irrespective of whether an owner is willing to sell or not.

Conditions of Engagement

A common name for the terms of contract between consultant and client. In some professions, they are referred to more correctly as ‘terms’ of engagement.

Cooling Off Period

A short statutory period after the contract is made, during which the purchaser may cancel the contract unconditionally. Usually does not apply in the case of auctions.

Counter Offer

A new offer as to price, terms and conditions, made in reply to a prior unacceptable offer Normally the counter offer terminates the previous offer.


An agreement between two or more parties to adhere to certain terms, conditions or restrictions regarding property, often written into a deed or other legal instrument such as a Certificate of Title.

Current Assets

(a) Assets not intended for use on a continuing basis in the activities of the entity such as stocks, obligations owed to the entity, short-term investments, and cash in bank and in hand. In certain circumstances real estate, normally treated as a fixed asset may be treated as a current asset. Examples include improved real estate held in inventory for sale; (b) An asset which satisfies any of the following criteria: (i) it is expected to be realised in, or is held for sale or consumption in, the entity’s normal operating cycle; (ii) it is held primarily for the purpose of being traded; (iii) it is expected to be realised within twelve months after the balance sheet date; or (iv) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date. All other assets shall be classified as non-current.22 See also Non-Current Assets.

Current Liabilities

Liabilities that would in the ordinary course of business be due or payable within twelve months.


Defect In Title

Where the title to real estate or documents relating to that title are found to be incorrect.

Defects Liability Period

The specified period of time within which the contractor is required, at his or her own cost, to rectify any defects in the completed works, arising due to faulty materials or workmanship and notified in writing. The period commences from the date of issue of the ‘certificate of practical completion’ and lasts for the period stated in the contract.

Deferred Maintenance

Maintenance that is due to be carried out in the current financial year but which will not be carried out because of a shortage of funds or unavailability of parts. Deferred maintenance should be added to the backlog of maintenance items awaiting attention.

Demised Premises

The area held under the terms of a lease.

Demolition Clause

A clause in a lease which gives the owner the right to serve notice and terminate a lease for the purpose of demolition or renovation.


(a) In accounting terms, the writing down of the original cost of an asset systematically over the life of that asset; (b) An effect caused by physical deterioration, or obsolescence, or both. There are several methods of calculating depreciation such as: (i) Accrued: the difference between the original cost of the asset and the written down value; (ii) Book: the amount reserved upon the books of an owner to provide for the retirement or replacement of an asset, as distinguished from Accrued Depreciation; (iii) Straight Line Depreciation: the provision each year of a fixed proportion of the original cost of the asset; (iv) Diminishing Value Depreciation: the provision by annual instalments of a diminishing amount computed by taking a fixed percentage of the book value of the asset as reduced by previous provisions. (c) In valuation terms, the writing down of the current cost of an asset to calculate its current value. The accumulated effect on the value of an asset due to physical, functional, technological and economic obsolescence.

Desk Review

A valuation review that is limited to the data presented in the report, which may or may not be independently confirmed. Generally performed using a checklist of items. The reviewer checks for the accuracy of calculations, the reasonableness of data, the appropriateness of methodology, and compliance with client guidelines, regulatory requirements, and professional standards.

Determination (Rental)

A decision set down by an appointed independent valuer in which a disputed rent is decided, in circumstances where a lessor and lessee have been unable to negotiate an agreement, or deciding on a rent amount previously in dispute between valuers for the landlord and tenant or by a third party.

Development Approval

Approval from the relevant planning authority to construct, add, amend or change the structure of a property.

Development Control Plan (DCP)

Local government authorities in which town planning powers are vested are required to produce plans showing the basis upon which property / land development is to proceed within their territories. These plans are called development control plans. All development applications submitted to the local authority are then reviewed on the basis of these development control plans before the granting or withholding of consent to development. DCPs are subordinate to LEPs. However, DCPs cannot be inconsistent or conflict with LEPs. DCPs provide more detail than LEPs. See also Local Environment Plan; Planning Instrument.
Development Cost The cost to create a project including direct costs of labor and materials, contractor’s overhead and profit, plus indirect costs such as taxes and development loan interest.

Development Standard

Any numerically based standard found in a planning instrument or deemed planning instrument, relating to the control of the development.

Direct Vacancy

Vacant area of buildings available for occupation directly from owner. This does not include sub-lease vacancy which is available from a tenant.


Recoverable costs. For example, in the case of real estate sales, expenses paid by an agent on behalf of an owner, such as advertising, rates and taxes.

Disclosure Statement

A schedule of information, as required under retail lease legislation that must be provided by a lessor prior to the new lessee’s lease or assignment to lease.

Discount Rate

The interest rate used to discount future cash flows to determine Present Value.

Discounted Cash Flow Analysis

(a) A method of analysing investment opportunities in which annual cash flows are discounted to arrive at their Net Present Value (NPV) or Internal Rate of Return (IRR). Also used as a basis in certain types of property valuations; (b) A financial modelling technique based on explicit assumptions regarding the prospective cash flow to a property or business. As an accepted methodology within the income approach to valuation, DCF analysis involves the projection of a series of periodic cash flows either to an operating property, a development property, or a business. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish an indication of the present value of the income stream associated with the property or business. In the case of operating real properties, periodic cash flow is typically estimated as gross income less vacancy and collection losses and less operating expenses / outgoings. The series of periodic net operating incomes, along with an estimate of the reversion / terminal value, anticipated at the end of the projection period, is then discounted. In the case of development properties, estimates of capital outlays, development costs, and anticipated sales income are estimated to arrive at a series of net cash flows that are then discounted over the projected development and marketing periods. In the case of a business, estimates of periodic cash flows and the value of the business at the end of the projection period are discounted. The most widely used applications of DCF analysis are the internal rate of return (IRR) and net present value (NPV).

Due Diligence

An investigation of the legal, financial and physical nature and characteristics, including the entitlements and liabilities attaching to and arising from a real estate asset or assets, usually for acquisition or compliance purposes.



A right to use the land of another (not involving the taking of any part of the natural produce of that land, or any part of its soil) or a right to prevent the owner of that land from using that land in a particular manner. Most commonly used where Government authorities have the right to run, for example, electrical mains or drainage through private property. Some form of compensation may be payable.


The exit point from a property.


Infringement of another’s rights or intrusion onto another’s property rights. For example, a fence or portion of a building erected by one person upon land of an adjoining neighbour, or a structure overhanging the land of a neighbour.


A charge or liability on a property; for example, a mortgage or a special condition on the use to which it may be put (e.g. easements, restrictions and reservations).

Equitable Interest

The interest of a beneficiary under a trust as opposed to the legal interest of the trustee(s). A beneficiary is said to hold equitable title while legal title is held by the trustee(s).

Exchange of Contracts

A formal legal process that commences the sale of real property on agreed terms. The vendor and purchaser each sign a copy of the sale contract and then exchange these documents, after which time the contract becomes legally binding on the parties. The parties are then bound to proceed to settlement, subject to any cooling off period that may apply. A deposit is usually also paid by the purchaser to the vendor during the exchange process. Any party that unilaterally declines to proceed to settlement may forfeit deposit monies or be subject to a damages claim.

Existing Use Rights

Rights established under planning legislation that allow the continued lawful use of land or buildings following the introduction of a new planning scheme or controls.

Extension of Lease

An agreement extending or renewing the terms of a lease for a period beyond the expiration date.

Extension of Time

An extension of the contract period granted to a contractor to allow for delays to the works from causes over which the contract has no control. The specific reasons for an extension of time are set out in the general conditions of contract and usually include inclement weather and delays caused by the principal, such as changes in the scope of the work.

External Management Structure

Where the Responsible Entity is a completely separate entity to that of the manager of the assets of the entity.


Facility Audit

An audit of the physical and functional adequacy of a facility, with particular reference to the building fabric and building services components, to provide an input for life cycle cost analysis, short-term maintenance planning and long-term planning purposes.

Facility Cost

Can be expressed as either the capital cost to establish a facility initially or the recurrent cost to operate and maintain a facility on an annual basis for the life of that facility.

Facility Management (FM) The process of planning, managing, maintaining, rationalising and accounting for facilities and associated services, while simultaneously seeking to reduce the associated overall costs. The primary focus of facilities management is to provide the optimum level of facility for the least financial outlay.

Feasibility Study

A financial analysis usually included in a report of a proposal to change or develop an asset. A project is ‘feasible’ when analysis indicates that there is a reasonable likelihood of satisfying explicit objectives and when a selected course of action is tested for fit to a context of specific constraints and limited resources.

Financial Modelling

The projection of a business’ or property’s periodic income or cash flow pattern from which measures of financial return can be calculated. Income or cash flow projections are generated through the use of a financial model that takes into account historical relationships between income, expense, and capital amounts as well as projections of those variables. Financial modelling may also be used as a management tool to test expectations for property performance, to gauge the integrity and stability of the DCF model, or as a method to replicate the steps taken by investors in making decisions involving the purchase, sale, or holding of a property or business.21 See also Discounted Cash Flow Analysis.

First Refusal (Right Of)

The right granted to a person to have the first privilege to buy or lease real estate, or the right to meet any offer made by another.

Fitout Costs

The cost of fitting out premises in accordance with the fit-out contract and includes the cost of any suppliers, consultants and contractors engaged pursuant to the clause.


Installed items that may be removed from real estate without causing irreparable damage to the land, structure or use of the premises.


Those parts of a property affixed to structures or land, usually in such a manner that they cannot be independently moved without damage to themselves or the property housing supporting or pertinent to them. Fixtures are usually included in a sale and commonly include items such as carpets, and awnings.

Floor Churn Rate

The total area affected by moves or reconfiguration, divided by the total building area, or area being considered in the last year, multiplied by 100. See also Primary Churn; Secondary Churn; Tertiary Churn.

Floor Space Ratio (FSR)

The amount of development that can be achieved on a site expressed as a ratio. A FSR of 2:1 means that a floor area equal to twice the area of the site is allowable. The result is known as Floor Space Area (FSA). See also Plot Ratio.

Funds From Operations (FFO)

United States terminology. The cash flow derived from trust operations, usually in relation to investment trusts.



Where the vendor agrees to sell a property, but then sells it to another party on more favourable terms.

Gearing (Leverage)

A measure of indebtedness; i.e., the extent of borrowings as against the equity held by a person or company in an asset. Usually expressed as a ratio. Positive gearing refers to the magnification of financial gain resulting from borrowing when the cost of capital (borrowed) is less than the return on capital and leads to magnification of returns to equity. Negative gearing refers to the same relationships but where the cost of capital exceeds the return on capital.

Going Concern

The entity is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. An operating business. Going concern also serves as a premise, under which Valuers and accountants consider a business as an established entity that will continue in operation indefinitely. The premise of a going concern serves as an alternative to the premise of liquidation. Adoption of a going concern premise allows the business to be valued above liquidation value and is essential to the development of the Market Value of the business.

Going Concern Value

The value of a business as a whole. The concept involves valuation of a continuing enterprise from which allocations, or apportionments, of overall going concern value may be made to constituents parts as they contribute to the whole, but none of the components in themselves constitutes a basis for Market Value.


(a) An intangible but marketable asset based on the probability that customers will continue to resort to the same premises where the business is carried on under a particular name, or where goods are sold or services provided under a trade name, with the continuing prospect of earning an acceptable profit being likely; (b) Goodwill may include two distinct components: goodwill that is property-specific, or inherent within the property and transferable to a new owner on sale of the property, and personal goodwill that is associated with the proprietor or manager. (In such case, the goodwill element will be extinguished upon sale of the property); (c) Future economic benefits arising from assets that are not capable of being individually identified and separately recognised.21 See also Personal Goodwill; Transferable Goodwill.

Green Star

The Green Building Council Australia (GBCA) Green Star suite of rating tools addresses commercial offices at all phases of development – design, construction and operations.

Gross Current Replacement Cost (GCRC)

The starting point used for the calculation of value using a depreciated replacement cost approach. The GCRC is established by reference to recent construction costs of similar assets. It should include components to cover direct costs such as the costs that could be directly attributed to a work unit, indirect costs such as design and engineering, support services, field operations, project management and procurement costs, and overheads such as business services, finance, administration, support services and indirect transport costs.

Gross Lease

One in which all operating costs on the property are included in the rental charged rather than charged as a separate amount. The landlord generally pays for all base year repairs, taxes and operating expenses incurred through ownership. It is the opposite of a net lease in which these costs are borne by the lessee.

Gross Lettable Area (GLA)

Used for calculating tenancy areas in: warehouses; industrial buildings; free standing supermarkets; and,showrooms.13 Refer to Method of Measurement, Published by the Property Council of Australia.

Gross Lettable Area Retail (GLAR)

Used for calculating retail tenancy areas in shopping centres; commercial buildings; and, strip shops, free-standing shops, semi detached or terrace type shops in suburban streets.13 Refer to Method of Measurement, Published by the Property Council of Australia. In some states or territories, lease legislation might contain provisions that over-ride the Property Council approach.

Gross Revenue

Total revenue collected from lessees including base rent, recovered outgoings, percentage rent and all other income.

Gross Sales

The sum total in dollars for all sales that the retailer makes during a specific period, usually in a financial year. Normally used for the purpose of percentage rent calculations.

Gross Workspace Ratio

Total area of premises (including any non-workspace area) divided by total number of employees.

Ground Lease

Usually a long-term lease of land with the lessee permitted to improve or build on the land and to enjoy those benefits for the term of the lease.

Ground Rent

The net rent paid for the right of use and occupancy of a parcel of unimproved land, or that portion of the total rental paid that is considered to represent return upon the land only.

Growth Rates

The expected annual rate of change in income and / or outgoings over a given forecast period. Income growth rates should reflect the expectation of market rent movements. The outgoings growth rates should reflect inflation or anticipated increases.


Head Lease or Master Lease

A lease to a single entity that is intended to be the holder of subsequent leases to sublessees that will be the tenants in possession of the leased premises. Headlease is common Australian usage; master lease is North American usage.

Hedge Fund

A type of investment portfolio under which the fund manager is authorised to use a number of higher risk investment techniques, including using derivatives, short selling, and borrowing funds, in order to generate a higher return.

Highest And Best Use

The most probable use of a property which is physically possible, appropriately justified, legally permissible, financially feasible, and which results in the highest value of the property being valued.

Holding Over

Where a lease term expires and the lessee remains in occupation (usually on a month-to-month basis) on the terms and conditions of the original lease.


Income Capitalisation Approach

An approach to value that considers income and expense data relating to the property being valued and estimates value through a capitalisation process.

Income Capitalisation Value

The indication of value derived for an income-producing property by converting its anticipated benefits (cash flows and reversion) into property value in one of two ways; direct capitalisation of expected income or discounting the annual cash flows for the holding period at a specified yield rate.

Indemnity Value

A basis of insurance cover for buildings and contents. The cost necessary to replace, repair or rebuild the property insured to a condition substantially the same as but not better or more extensive than its condition at the time the damage occurred, taking into consideration age, condition and remaining useful life.

Infrastructure Assets

Assets that usually display some or all of the following general characteristics: (a) they are part of a system or network; (b) they are specialised in nature and do not have alternative uses; (c) they are immovable; and (d) they may be subject to constraints at time of disposal.


The entry point to a property.

Internal Rate of Return (IRR)

The discount rate that equates the present value of the net cash flows of a project with the present value of the capital investment. It is the rate at which the Net Present Value (NPV) equals zero. The IRR reflects both the return on the invested capital and the return of the original investment, which are basic considerations of potential investors. Therefore, deriving the IRR from analysis of market transactions of similar properties having comparable income patterns is a proper method for developing market discount rates for use in valuations to arrive at Market Value. Used in discounted cash flow analysis to find the implied or expected rate of return of the project, the IRR is the rate of return which gives a zero net present value (NPV).

Investment Asset

An asset owned by a corporation and considered extraneous to the operational requirements of the corporate owner. Land and / or buildings held to earn a present or future rental income and / or for the preservation or gain of capital value or both. It is not held for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business.21 See also Operational Asset; Surplus Asset.

Investment Property

Property (land or a building – or part of a building – or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both.


Lead Manager

The investment banking firm, generally with the largest position in an underwriting for a new issue of securities, which handles the principal responsibilities for co-ordinating the issuance.

Lease Abstract

A summary of a lease document listing the specific details peculiar to that lease.

Leasehold Estate

The interest which a tenant or lessee acquires under a lease including rights of use and occupancy for a stated term under certain conditions (e.g., the payment of a premium and/or rent). Leaseholds may be of various duration such as 25 years, 60 years and 99 years etc.

Lessee’s Improvements or Tenant’s Improvements

Fixed improvements or additions to land or buildings, installed by and paid for by the tenant to meet the tenant’s needs; typically removable by the tenant upon expiration of the lease; removal causes no material damage to the real estate.

Liquidated Damages

An amount of damages payable by the contractor as compensation for losses incurred by the principal as a result of failure to complete the works within the agreed, or extended, contract period. Damages are payable for every unit of time specified in the contract documents (day, week or month) by which the agreed, or extended, practical completion date is exceeded.


Make Good

The obligation of a lessee at the end of their occupation to ensure that premises are returned to the same condition as at the commencement of the lease; for example, painting and restoring partitions.

Market Capitalisation

Issued units of a trust or security listed on the stock exchange, multiplied by the market price of each unit or security.

Moving Annual Turnover (MAT)

Sales for a twelve-month period calculated on a monthly rolling basis.


Naming Rights

The exclusive right given to the lessee to name the building, in association with their occupancy of the premises.

National Australian Built Environment Rating System (NABERS)

The National Australian Built Environment Rating System is a multiple index performance-based rating tool that measures an existing building’s overall environmental performance during operation. The indicies covered by NABERS are being launched sequentially. The energy component of NABERS is the ABGR rating. The tool was developed by the Federal Department of Environment and Heritage (DEH) and is being managed, operated and further developed by the NSW Department of Energy and Utilities (DEUS) under a commercial agreement.

Net Absorption

Measures the change in volume of occupied space between two survey periods and is used to determine demand. Net absorption is occupied stock at the end of the survey period, less occupied stock at beginning of the period.

Net Asset Values (NAV)

Total assets of a company less total liabilities. A more refined measure is net tangible assets, which does not include intangible items like goodwill.

Net Current Replacement Cost (NCRC)

(a) Cost that would be incurred in the marketplace in acquiring an equally satisfactory substitute asset; (b) It is the cost of purchasing, at the least cost, the remaining service potential of the asset at the balance sheet date; it is an entry value; (c) Simply put, it is the replacement cost less depreciation.

Net Lettable Area (NLA)

Used to calculate tenancy areas for office tenants.13 Refer to Method of Measurement published by the Property Council of Australia.

Net Operating Income (NOI)

(a) Annual net income remaining after deducting all fixed and operating expenses and rates, taxes and levies, but before deducting any financial charges (mortgage), costs and income taxes; (b) The net inflow after deducting vacancy allowance, operating expenses and statutory outgoings from gross rents.

Net Present Value (NPV) / Present Value (PV)

The measure of the difference between the discounted revenues, or inflows, and the costs, or outflows, in a DCF analysis. In a valuation that is done to arrive at Market Value, where discounted inflows and outflows and the discount rate are market derived, the resulting present value should be indicative of the Market Value by the income approach.

Notice of Termination

The notice given by either the landlord or tenant that they want to end the rental agreement and vacate the property in compliance with the terms and conditions of the lease.

Novated Contract

A contract substituted for another with the agreement of all parties. For example, in design and construct contracts where the design team engaged by the client becomes responsible to the head contractor under a novated contract.


Occupancy Cost

The total of costs incurred by a tenant to provide space for operations. It includes net rent, operating costs (outgoings), capital costs, taxes, insurance and depreciation allowances.

Occupancy Cost Ratio

Calculated by dividing the tenants’ total occupancy costs into their gross turnover. Costs include rent, promotional levies, marketing fees, statutory costs and costs related to occupation of floor space. Also known as Rent to Turnover Ratio.

Occupied Stock

The total marketable stock less total vacancy [Property Council of Australia Office Market Report].

Office Space Utilisation Rate

A measure of the efficiency of office space in terms of square metres occupied per person.

Operating Expense Ratio

The total operating expenditure expressed as a percentage of the gross income realised.

Operating Profit

Income from a company’s ordinary business activities that excludes interest and income tax expenses. May be expressed either before or after tax and is the result of operating revenue less operating expenses and does not include any abnormal adjustments.

Operational Asset

An asset considered requisite to the operations of a going concern or corporation.

Operations and Maintenance (O&M) Manuals

Operations and maintenance manuals provided by the services engineering contractors after setting up a new installation of electrical / mechanical / hydraulic / fire protection services for a facility.


(a) The right to buy or sell a fixed quantity of a commodity, currency or security at a particular date at a particular price (the exercise price)4; (b) A right given for a consideration to purchase property on or before a fixed date, on terms previously agreed upon. An option entitles, but does not oblige, the person having the option to make the purchase; (c) An option in a lease refers to a further term of tenancy.


The expenses incurred in generating income. In real estate, these expenses include but are not necessarily limited to property rates, insurance, repairs and maintenance and management fees. Operating expenses when subtracted from gross income equal net operating income.


Permitted Use

The allowable use within the premises specified in the lease contract (not to be confused with ‘permissible use’).

Physical Depreciation (Determination)

The decline in value due to the physical action of time and the elements, as well as through usage. Deterioration through physical depreciation is normally as a result of inadequate maintenance or normal weathering and decay. See also Physical Obsolescence.

Plant And Equipment

Assets intended for use on a continuing basis in the activities of an entity including specialised, non-permanent buildings; machinery (individual machines or collections of machines, trade fixtures, and leasehold improvements), and other categories of assets, suitably identified. Tangible assets that: (a) are held by an entity for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used over a period of time. See also Personal Property.

Portfolio Management

The management of a portfolio of investments according to risk and return targets.

Portfolio Turnover

Combined value of purchases and sales with settlement date occurring within the report year as a percentage of opening capital value. Total transaction value is expressed ex-transaction costs.

Post Occupancy Evaluation (POE)

A careful and systematic evaluation of the performance of an occupied facility measured in terms of user satisfaction, fitness for purpose (based on client requirements), technical performance and value for money.

Practical Completion

The stage reached when a project has been essentially completed and is fit for its intended purpose, except for minor omissions and defects that do not prevent its use, and with tests required under the contract having been carried out. Practical completion is marked by the issue to the contractor of a certificate of practical completion.

Present Value (PV)

Current value of a future amount or scheme of payments discounted at an appropriate discount rate. See also Net Present Value.

Price Earnings Ratio (P/E)

A measure of the attractiveness of a particular security or trust listed on the stock exchange – a higher price earnings ratio means investors are prepared to pay a higher price for the security or trust because of the anticipated future growth in the earnings of the investment. It is calculated by dividing the price of a share or trust by its current earnings.

Prime Cost Item

Prime cost items are building components usually relating to building finishes or services, (e.g. air-conditioning, lifts, bathroom finishes, etc.) A sum is allowed for these items in the building contract and they are later selected by the owner.

Prime Rate

Generally, the 10-year Government bond rate is adopted as the benchmark for the prime rate. See also Risk Free Rate.
Professional Indemnity A form of insurance against negligence by a professional adviser.

Programmed Maintenance

Maintenance assigned to be carried out within a specific period, such as a budgeting period, or during annual holidays.

Project Management Contract

A contract for the total management of a construction project by an independent person or organisation which is responsible for all aspects of design, documentation, contractual arrangements, inspections and certification of work for payment and of completion on behalf of the proprietor.

Property Management

The management of a property on behalf of the owner. For example, the leasing of space, collection of rents, selection of tenants and generally the overall maintaining and managing of real estate properties for clients.

Property Trust

A collective investment vehicle which owns a portfolio of real property. See also Property Trust (Listed); Property Trust (Unlisted); Real Estate Investment Trust.

Property Trust (Unlisted)

A collective investment vehicle which owns a portfolio of real property which is not listed on the primary stock exchange. Transactions are directly with the Trust’s manager, who fixes the price in relation to the established asset backing with the Trust.

Property, Plant and Equipment (PP&E)

(a) Assets intended for use on a continuing basis in the activities of an entity including land and buildings; plant and equipment; and other categories of assets, suitably identified; less accumulated depreciation. Property, plant, and equipment are tangible, or physical, assets; (b) Tangible items that: (i) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (ii) are expected to be used during more than one period.

Public Liability Insurance

Catch-all insurance against a person’s liabilities in tort, arising out of such causes as his activities or his occupation, ownership or use of premises. Such insurance does not cover areas of liability usually covered by other insurance, such as worker’s compensation, professional indemnity, motor vehicle insurance, etc.

Put Option

An option contract that gives the holder the right but not the obligation to sell a specified asset at the given exercise or strike price on or before the contract’s expiration date.



Quantity Surveyor

A person who undertakes the preparation of a statement of the quantities and costs of material required for the carrying out of constructional work and related activities.

Quiet Enjoyment

A right of a lessee to enter upon and use the premises without any interference from the lessor.


Ratchet Clause

A minimum rental provision in leases, which protects the lessor from a drop in rental below an agreed lower limit in the event of a reduced market value or CPI. Has effect during rent reviews.

Rate of Return

An amount of income (loss) and / or change in value realised or anticipated on an investment, expressed as a percentage of that investment.

Real Estate Investment Trust (REIT)

United States business trust or corporation that is usually traded publicly and manages a portfolio of real estate to earn profits for shareholders. Patterned after investment companies, REIT’s make investments in a diverse array of real estate such as shopping centres, medical facilities, nursing homes, office buildings, apartment complexes, industrial warehouses and hotels. (US terminology)

Reasonably Efficient Operator (Average Competent Management)

A market-based concept whereby a potential purchaser, and thus the Valuer, estimates the maintainable level of trade and future profitability that can be achieved by a competent operator of a business conducted on the premises, acting in an efficient manner. The concept involves the trading potential rather than the actual level of trade under the existing ownership, so that it excludes personal goodwill.

Reference Schedule

A section of the lease document, usually at the beginning, which outlines the variables in the lease.


A payment made periodically by a lessee to a lessor for the use of premises. The term “Rent” is often associated with a variety of other terms outlined below:

  • Gross: In a gross lease, all operating costs on the property (excluding direct tenancy expenses) are included in the rental.
  • Net: In a net lease the owner recovers outgoings from the tenant on a pro-rata basis (where applicable)
  • Face: The rent shown on a lease document which may or may not include incentives and may or may not include outgoings.
  • Effective: The actual liability for rent and outgoings after adjustments for any incentives to the face rent are taken into account.
  • Passing (or contract): The rent specified by a given lease agreement; although a given contract rent may equate to the Market Rent, in practice they may differ substantially, particularly for older leases with fixed rental terms. The term, contract rent is North American usage; passing rent is Commonwealth usage. (IVSC)
  • Equivalent: Equivalent refers to the rent being adjusted for the effects of any market rent reviews that will occur in the period of consideration.
  • Base: The minimum acceptable rental provided in a lease. In retail leases the base rent generally refers to the commencing rent which is supplemented with a ‘percentage rent’ based on the tenants turnover.
  • Break-Even: The point at which a tenant’s base rent is equal to an agreed level of sales above which percentage rent takes effect.
  • Concessionary: A discounted rent, usually during the initial lease term.
  • Market: The estimated amount for which a property, or space within a property, should lease on the date of valuation between a willing lessor and a willing lessee on appropriate terms in an arm’s-length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Whenever Market Rent is provided, the “appropriate lease terms” which it reflects should also be stated.
  • Turnover / Percentage / Participation Rent: Any form of lease rental arrangement in which the lessor receives a form of rental that is based upon the sales of the lessee. Percentage rent is an example of a turnover rent. (IVSC).
  • Overage: US terminology.
  • Peppercorn: A term used where it is desired to reserve only a nominal rent for any period. A minimal rent which is below market values.
  • Rack: (a) Market Rent (b) Advertised rate for hotel rooms.

Rent Free Period

A period of occupancy where no rent is demanded, normally used as an incentive to a new tenant at the commencement of a lease and varies according to market conditions.

Rent Review

A periodic review of rental under a lease using a predetermined method. For example, increase in line with Consumer Price Index (CPI), or in accordance with a market valuation.

Rental Determination

A valuation report by an independent valuer fixing a rent, in circumstances where a lessor and lessee have been unable to negotiate an agreement.

Required Rate of Return

The minimum rate of return an investment must produce in order to induce an individual to invest. Also known as Hurdle Rate of Return.

Residential Tenancies Tribunal

Specialist bodies exist in most Australian States and Territories to resolve disputes between landlords and residential tenants in low-cost manner, usually without the involvement of lawyers. Specifically, these bodies include the: Residential Tenancies Tribunal (ACT, SA); Residential Tenancies Authority (QLD); Residential Tenancies List (VIC); Residential Tribunal (NSW); Commissioner of Tenancies (NT); and Residential Tenancy Commissioner (TAS). Tenancy disputes may be heard by the Small Disputes Division of Local Courts in WA.

Residual Value

The estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The net amount which the entity expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal. The remaining value of an asset at the end of a prescribed period of time (in this definition residual value is similar to scrap value).

Responsible Entity

The responsible entity for a trust manages the trust. In an internal management structure the responsible entity also manages the properties held by the trust. See Stapled Securities.

Restricted Assessment (Kerbside Or External)

Where an assessment is made without undertaking a full inspection of the asset on the specific instructions of the client.

Restrictive Covenant

An undertaking that requires one party to do, or refrain from doing certain things.

Retention Rate

The percentage or factor applied within a discounted cash flow to reflect the probability of tenants renewing or exercising options upon expiry of current leases.

Right of Access

Where a right has been given, usually for inspection of services, agistment, etc.

Right of Entry

Where a landlord may inspect the premises, provided reasonable notice is given to the tenant.

Rolling Internal Rate Of Return

Internal rates of return calculated from a fixed base which assumes the sale of the investment at the end of pre-determined periods; for example, end of Year 1, end of Year 2.


Sale and Leaseback

A transaction whereby an existing owner sells an asset to another who then leases it back to the original owner on pre-determined terms and conditions for the mutual advantage of each party.

Scope of Works

Pre-contractual drawings and specifications showing what and how an owner wants to build.

Security Deposit

A deposit to assure performance usually of a lease. In the event of non-performance, the deposit will usually be fully or partially forfeited.

Security of Tenure

Describes the advantages of ownership as compared with leasing. When the term is used in connection with renting, it means the certain term a tenant can remain in occupation.

Service Agreement

Agreement between service providers and customers that establishes agreed service scope volumes and standards.

Sublease Vacancy

Vacant office space being offered for lease by a tenant holding a head lease as opposed to an owner.15
Sub-Lessee One who enjoys the benefits, rights and obligations of a sub-lease.


A tenant who grants a sub-lease of the property of which they are the tenant.

Surplus Asset

An asset that is owned by an entity such as a corporation but considered superfluous to the operations of that entity. A surplus asset is not considered necessary to the production of the good or service the entity produces. It is held for investment, development or disposal, or used as security for a loan or some other commercial purpose unrelated to the operation of the entity. The Market Value of a surplus asset is determined by its highest and best use.


Tenancy Agreement

A form of lease, generally in an abbreviated form. It may be registered on an owner’s certificate of title.

Tenancy Schedule

A listing of each premise in a property including tenancy name, number, area, lease commencement and expiry dates, rental, rental review date and type, outgoings and rent review mechanism.

Terminal Capitalisation Rate

The capitalisation rate used to calculate the terminal value (the value at the end of the discounted cash flow period).

Time Weighted Average Annual Rate Of Return

The geometric mean of individual period rates of return. It eliminates the impact of timing of cash flows and hence is the preferred method for assessing a manager’s performance.

Total Active Return

In attribution analysis, the total excess return over the benchmark; i.e.; the sum of the sector allocation, property selection and interaction effects.

Total Operating Costs

Include the total costs associated with the day-to-day operation of the facility. Such costs include inter alia, maintenance and repair costs (both fixed and variable), administrative costs, management fees, labour costs, rates, land taxes, income taxes, insurances, light, power, fuel, security, cleaning and all costs associated with grounds and car parking. See also Operating Expenses; Outgoings.

Total Return

(a) Incorporates the return from current income together with the return from capital growth adjusted for expenditure in the period; (b) The aggregate increase or decrease in the value of an property or portfolio resulting from the net appreciation (or depreciation) of the principal plus the net income (or loss) generated by that property or portfolio during the period.


A class of securities. Commercial Mortgage Backed Securities (CMBS) offerings are generally divided into rated and unrated classes, or tranches, according to seniority and risk. Higher rated tranches allow for internal credit enhancements, while lower rated classes offer higher yields to investors.

Transaction Costs

Costs associated with the purchase or sale of a property. Acquisition costs include legal fees and stamp duty, etc., while disposition costs include legal fees, brokerage fees, etc.

Transaction Dates

There are two dates associated with a property transaction – date of contract exchange and date of settlement which is the date of legal completion and transfer of title.

Transferable Goodwill

That intangible asset that arises as a result of property-specific name and reputation, customer patronage, location, products and similar factors, which generate economic benefits. It is inherent to the specialised trading property, and will transfer to a new owner on sale.21 See also Goodwill; Personal Goodwill.


A fiduciary relationship, an instrument thereof, which places the legal title to, and the control of property, in the hands of a trustee for the benefit for another person or persons (beneficiaries). A trust may be temporary, conditional, or permanent.
Trust Account A legislative required bank account where monies are held by an agent for or on behalf of another person, e.g. deposits, rental etc.

Turnover / Sales

Per Square Metre Sales divided by the total number of square metres of rentable area. May apply to individual stores, groups of stores or total centre.

Turnover Rent

Any form of lease rental arrangement in which the lessor receives a form of rental that is based upon the earnings of the lessee. Percentage rent is an example of a turnover rent.

Turnover Schedule

vThe normal monthly reports prepared by shopping centre managers showing the recorded sales or turnover of each retailer within the centre. The turnover is normally reported in two ways – for the month just completed and for the full year just completed (the latter form is also known as Moving Annual Turnover).


Unencumbered Property

Property free and clear of mortgages, restrictive covenants, leases, and assessments of any kind.



The area, expressed in square metres, which is physically empty but otherwise occupiable. Space which is empty but unable to be occupied is not included in the calculation of vacancy and marketable stock. This may be due to refurbishment or the inability to pass Occupational Health & Safety standards. 15. See also Direct Vacancy; Sublease Vacancy.


Weighted Average Lease Term

The weighted average lease term remaining to expire across a portfolio, it can be weighted by rental income or square metres.
Weighted Average Return Return of a grouping of funds (or properties) which is weighted via the capital employed of the fund (or properties).

Wholesale Property Funds

Unlisted property investment vehicles that have been or are currently open to institutional investors, that is, superannuation funds or general funds. These funds can either be diversified or sector specific.

Written Down Value

(a) Applies to a depreciable asset and is the remaining value after the deduction of accumulated depreciation from the original or historical cost. This value will be affected by either the method of depreciation chosen and the value attributed to the asset; (b) The unexpired cost of an asset carried in the books of an organisation. The value of an asset, at a point in time, after the systematic allocation of depreciation. See also Book Value.



It is important to note that yields and capitalisation rates (cap rates) are separate and distinct concepts, although they are often discussed together. Yield is also referred to in Australia as the direct capitalisation rate, or, simply, the capitalisation rate. Technically the yield is the resultant rate of return from a net income/value relationship while the (direct) capitalisation rate is the rate of return used to capitalise the net income to determine the value or price.

Generic Definitions:


The derived percentage return of a property assessed from the net income and the market value or price. It is calculated by dividing the net income by the opening market value or price.

(Direct) Capitalisation Rate

Any divisor (usually expressed as a percentage) that is used to convert et income into value or price. The rate at which the annual net income from an investment is capitalised to ascertain its capital value at a given date.

There are several specific yield types depending on the nature of the net income. Terms commonly used in Australia are:

Effective Yield

The Effective Yield is the percentage return on value or price derived from the current net income after adjusting for rent incentives or impending vacancies.

Equity Yield Rate

The Equity Yield Rate is the percentage return on the equity portion of a property investment. It is the net income after deduction of the annual debt service divided by the equity portion of the asset value.

Initial (Passing) Yield

The initial or passing yield is the percentage return on value or price derived from the current net passing income. No allowance is made for any future rent growth.

Market Yield

(a) The market yield is the percentage return on value or price derived from net income that reflects current market rent levels. If the current income from a property is at market level, then the market yield is the same as the initial (passing) yield.

(b) An average yield identified by analysts for different classes of buildings (for example, you may see an analyst quote a yield for Premium and Grade A office stock in a specific CBD). The yield quoted is an estimate.

Reversionary Yield

The Reversionary Yield is the percentage return on current value or price derived when the current market rentals are payable. This yield relates a future net income to a current value or price and it is normally quoted together with the date from which it will apply. To calculate a Reversionary Yield, one would determine those leases that are subject to a market rent review within the period of consideration and adjust the income from those leases for the effect of the reviews. (It should not be confused with the Reversion Yield (see Terminal Yield)

Terminal Yield (Capitalisation Rate)

(also Exit Yield or Reversion Yield)

The Terminal Yield (rightfully a capitalisation rate) is the percentage return applied to the expected net income following a hypothetical sale at the end of the cash flow period. It is a capitalisation rate used to determine the terminal value in a discounted cash flow exercise.

Yields based on income over several years:

Annualised Yield

The Annualised Yield is the total holding period return on the net income of a property expressed as an annual compound rate.

Equated Yield (refer Whipple (1995, p 335-336))

The Equated Yield is an annualised yield that is derived from the current net income and future changes to the net income over time with specific consideration of future rental growth. It is the rate of return over a specific time period that has been adjusted for rental growth.

Equivalent Yield

The Equivalent Yield is an annualised yield that is derived from the current net income and future changes to the net income over time but no allowance is made for future rental growth. It is the rate of return of a net income stream over a specific period of time that reflects current actual rents and costs and current levels of rental values.

It is recommended that other yield terms are not used in Australia without an associated definition.

Yield to Maturity

The percentage rate of return paid on a fixed security such as a bond if it is bought and held to its maturity date. To calculate the yield to maturity, the investor must take into account the coupon rate, time to maturity and the market price at which the security was purchased.