Like everything else in life, property ages. The valuation methodologies,which we describe elsewhere ion the website, rarely reflect that and, instead, assume that income persists in perpetuity. Yet the valuation processes typically do not allow for a sinking fund to arrest the physical or economic deterioration in properties. The chart above represents, in a stylised way, how a property is initially constructed. At that point, it is considered ‘prime’ - new or nearly new - with a full life expectancy. Exactly what its actual life is going to be cannot be determined. Its physical life will largely be determined by how well the various components - services, components, structure, etc - wear over time, but there are unknown factors such as changes in safety requirements or thermal insulation, or unexpected premature ageing. In general, the structural frame, whether it is steel, brick, concrete or even timber, should be expected to have a physically long life of maybe 50 or 100 years or more, with the remaining parts being replaced (much) more frequently. After a number of years, which might be, say, 10, the property becomes redefined from prime to ‘core’. Nothing physically may have changed significantly to the property, but fashion and competition from new developments will mean that it is not quite as attractive as it was before. Through the core period, increasing amounts of maintenance may be required, particularly to services such as air conditioning and lifts. Gradually, however, as it ages, it will become less attractive to the better tenants and the building will be increasingly looking tired. At the age of, say, 25 years, it may well be considered ‘secondary.’ Eventually, and this may happen because of difficulties in attracting a tenant, a major refurbishment will be required. This will bring back to a core condition. Such a refurbishment will retain the physical structure and replace most or all of the other components, including the services. Before then, there may have been light refurbishments, replacing fittings and finishes, but a major refurbishment will probably require planning consent. Eventually after a number of further years, demolition may be the most suitable next stage. However, with the main exception of residential property, the factor determining the life of a life of building could possibly be economic obsolescence. This means that the building may physically be able to be used for the original function - but that function may no longer be economically viable (in which case the building may lie empty) or there may be an alternative use which is financially higher value. in the latter case, it may be possible to convert the space into that alternative use. If that is not possible, demolition and redevelopment might be an attractive option. Although economic obsolescence is more likely to occur in buildings which have had use for a number of years, it is certainly not inconceivable that it can occur to buildings that are still prime or, in the most extreme case, still under construction. The latter is possible in a period where market values are rising very strongly and it is possible to redesign the building to, perhaps add additional floors or change the specification to meet demand for a particular requirement. A good current example of buildings reaching the end of their economic life before they are physically obsolete is in the retail sector. Shopping centres that are apparently very suitable for that use and look very stylish may not be attracting enough tenant demand to secure substantial occupancy. In turn, that can depress rental values even amongst the tenants who are still trading. It may then be viable to obtain vacant possession and convert to, typically, residential. All of this indicates how, even at the most fundamental level, the returns over the life of a building may be impossible to project. An appraisal covering a 5 or 10year period may be the only practical assessment that can be produced, although that will expose the assessment to the vagaries of the cycle, which are rarely reflected in the projections. The other problem will be the expected value at the end point: that will be determined by the equivalent assessment made by the hypothetical purchaser. Finally, just a word on terminology. As a building ages, so it depreciates, whether that is physical or economical. The depreciation can be contained or arrested by spending capital on it. Sometimes the tenant may be responsible for maintaining the building during the term of a lease, but refurbishment, major refurbishments and redevelopment will be by the landlord or owner. When a building is no longer fit for purpose, it is considered obsolete and, again, that may be physical or economic.