What is Progression/Regression in Real Estate?
Progression/Regression is, in a broad sense, an upgrade or downgrade by comparison to a previous state. In real estate, the principles of progression and regression refer to changes in the value of a property based on the value of other neighboring properties.
What is the Principle of Progression?
According to this appraisal principle, the value of a property increases when it is surrounded by or adjacent to more expensive properties.
For example, if an abandoned warehouse is restored and converted into desirable creative office space near lower value properties, these will be positively affected, in that their sale or lease price, as well as the property tax, may go up. This is because they are located near a new, more expensive property.
This can create a “snowball effect” where the renovation or redevelopment of one property can raise the value of neighboring ones, encouraging investments in these properties which would further increase the average valuation of the area, and so forth.
What is the Principle of Regression?
The opposite appraisal principle states that the price of a high-quality property that is located in an area with properties of lower or declining value will be negatively affected due to its location. This principle is most evident when comparing the appraisals of properties that are similar in size and amenities.
For example, let’s say that 15 years ago, a retail property that was located in an affluent neighbourhood with high quality housing and transport would get expensive leases. If, during this time time, the neighbourhood infrastructure deteriorated, access to transport is not as convenient as it used to be or the value of the housing properties around it has gone down (or a combination of these factors), the retail property may have to lower its rates in order to keep existing tenants or get new ones, leading to reduced overall property value.
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