In a recent case on the compulsory acquisition of advertising hoardings, reference was made to a “48-sheet poster”. What is meant by this term and how are such hoardings valued?
Advertising hoardings are so much a part of urban life that they tend to be taken for granted and yet, what is often little appreciated is just how valuable they can be. Outdoor advertising takes many different forms, from the large hoarding panels adjoining busy main roads to the smaller illuminated panels which decorate bus shelters and the cylindrical pillars commonly seen in pedestrianised precincts. Notwithstanding the current recession and the recent decline in advertising revenues, the market for suitable sites is fiercely competitive, with most of the key locations for larger sites controlled by a relatively small number of national companies, which include Mills & Allen, Arthur Maiden, London & Provincial, Adsel & National Solus. These companies tend to specialise in certain aspects of the outdoor advertising market. There are many thousands of 48-sheet hoardings nationwide and over 60% of these are controlled by Arthur Maiden and Mills & Allen, while poster advertising at bus stops tends to be the province of Adsel.
Each company will have estates personnel concerned with identifying, acquiring, developing and managing suitable sites. The supply of these sites is, by nature, restricted and also subject to stringent planning controls owing to the potentially intrusive character of large hoarding structures. Sites are often temporary in nature, performing, as they often do, the secondary function of screening unsightly land, buildings and sites which are undergoing development.
Essentially the value of such sites results from a highly competitive demand set against this restricted supply and planning constraints. It is said that poster advertising is one of the most cost-effective means of communicating the advertiser’s message when measured in terms of the ratio between cost and the number of potential sales opportunities created. A visible and well-located hoarding alongside a busy commuter route will be seen by large numbers of motorists, especially in urban areas where traffic is slow moving or stationary (road junctions for example) where there is time for the message to be absorbed. The opportunity for reinforcement results from the tendency of people to use routes on a regular basis, a journey to and from work for example. If further evidence of value were needed, one only has to consider the creativity and sophistication of poster campaigns and the wit displayed by many advertisers who are clearly prepared to go to great expense in mounting a campaign to attract the attention of passing motorists.
For the estate manager, then, the advertising hoarding represents a clear opportunity to generate substantial sums of income out of small areas of land which can serve no other useful purpose. Consider, for example, the income generated by such means by British Rail, utilising bridge buttresses and those characteristic strips of narrow land, or by local authorities who own numerous pieces of otherwise sterile roadside verges in suitable locations.
Hoarding companies may take sites on a licence or lease, with the company taking responsibility for the erection and maintenance of the structure and for obtaining planning consent. They may well, in addition, be required to carry out landscaping and other environmental improvements to the site. The owner of a let site simply collects the income which can be substantial. Companies will also be prepared to purchase the freehold interest in suitable long-term sites.
The term “48-sheet” refers to the typical large hoarding supporting a poster 10 ft high and 20 ft wide. But this is not the only standard size. Large poster images are made up of smaller units, and the size of these units is determined by the maximum size which can be accommodated in the printing process. Originally, posters were composed from standard sheets 20 in by 30 in, known as Double Crown sheets. Nowadays, modern printing processes accommodate sheets of twice the dimensions, 40 in by 60 in. This standard poster unit is the size of four Double Crown sheets and is known as a “4-sheet”. It is this size which is commonly seen adorning bus shelters.
Larger posters are composed by pasting together a number of “4-sheets”. Thus, a hoarding composed of two “4-sheets”, placed one above the other, is known as an “8-sheet”, two “8-sheets” side by side, a “16-sheet” and so on, up to the normal maximum, the “96-sheet”. The “48-sheet” then is half this maximum size and is the most common form of the medium, illustrated below.
Planning
Because of the potentially intrusive nature of such large and dominating structures in key locations, express planning consents are usually granted for a limited life. Once the express consent has expired, the use of the hoarding may continue by deemed consent under the Town and Country Planning (Control of Advertisements) Regulations. The Secretary of State has the power to make regulations from time to time (section 220 Town and Country Planning Act 1990). For a detailed consideration of the planning position, the reader should refer to the Town and Country Planning (Control of Advertisements) Regulations 1989 (SI 1989 No 670) and Town and Country Planning (Control of Advertisements) (Amendment) Regulations 1990 (SI 1990 No 881).
The regulations give local planning authorities powers which shall be exercised “only in the interests of ammenity and public safety” and require that no advertisement may be displayed without consent. Consent will be either express or deemed. Deemed consent is granted for any advertisement falling within a range of classes identified in Part I of Schedule 3 of the 1989 regulations. The Schedule includes functional advertisements of various public and statutory undertakers and local authorities, temporary advertisements for sale or letting, advertisements on business premises which are related to the business carried on, flags, hoarding advertisements enclosing building sites, and any advertisement on a site used on and continually since April 1 1974, without express consent. For each class the Schedule identifies the appropriate conditions and limitations to be applied to the deemed consent. For advertisements not identified in the Schedule, and this will include most permanent hoarding sites, it will be necessary to apply to the local planning authority for express consent.
Under the regulations, in the case of an advertisement subject to deemed consent, the local planning authority has powers to serve a discontinuance notice requiring that the use of the site should cease if it is in the interests of ammenity or public safety. If the use of the site commenced after August 1 1948, compensation for the removal is not payable. The regulations make provision for appeal to the Secretary of State where a discontinuance notice is served.
Where express consent has been granted, the local planning authority has power to revoke or modify the consent, subject to the payment of compensation to any person suffering loss or damage.
Valuation
In practice it might be expected that rental values will be found by comparison as market evidence is usually widely available. However, care must be taken in deriving evidence from comparables because as location will be the key factor, rental values will vary enormously from site to site. It would be by no means exceptional for a well-located “48-sheet” to command an annual rental value in excess of £3,000.
In arriving at the rental value it will obviously be necessary to consider the position of the hoarding relative to passing motorists, its visibility, the speed and volume of traffice passing the site, as well as the size and nature of the population of the area in which the hoarding is located. A site parallel to the road will be less valuable than one which is angled; sites visible to traffic from both directions are more valuable than sites which can only be seen from one direction; sites near traffic lights where the flow of traffic is interrupted will be more valuable. If the location is such that it is likely to be seen by a larger proportion of people in social classes A and B, it may well command a higher rent. The range of relevant factors are identified within the advertising industry in terms of what is referred to as the OSCAR rating — a numerical score out of a possible 100, attached to a particular site which is used as a means of establishing its relative value.
Where suitable evidence of similar locations is not available, particularly where a virgin site is being evaluated, it should be remembered that, ultimately, the rental value of the site derives from the revenue received by the hoarding company from advertisers.
Advertisers will take hoarding space for short periods of time, normally several weeks, but will often negotiate a package with the hoarding company to use a whole range of sites in connection with a particular national campaign. In such circumstances it can be difficult to relate the payments made to a specific site. However, if the revenue for a site can be determined, it should be possible to arrive at the surplus produced by the site by deducting the costs incurred by the company; management, repair, interest on capital costs, which can then be apportioned between the operator’s profit, the site rent payable to the owner and the rates payable to the charging authority. It is normal to allow an amount in the region of 50% of the net operating revenue to cover these items.
Capital values are also of relevance as sites are sometimes bought and sold on the open market. It is not unknown for companies to trade sites between themselves. Poster advertising is often conducted on a national basis, so companies will be anxious to achieve wide coverage, perhaps specialising in a particular standard size or location of hoarding which enables them to negotiate lucrative packages with advertisers. Where there are gaps in the coverage, companies may be prepared to pay sums in excess of the revenue value of the site.
It is not uncommon for capital valuations to be undertaken where compensation payments arise as a result of the service of discontinuance orders(1).
In these circumstances it should be possible to value the interest in the site whether freehold, leasehold or held on licence by using normal investment techniques and capitalising the rental income or profit rent at the appropriate discount rate.
In arriving at the rate, it is necessary to have regard to the risks related to the income, which tend to be relatively high because of the limited degree of security, the high risk of discontinuance action, physical changes which might reduce the effectiveness of the site for advertising purposes, as well as the comparative volatility of the advertising industry itself.
So, notwithstanding the potential to site owners for the receipt of high-income and low-management costs, as well as incomes well secured against inflation (sites held on license incomes are often subject to annual review and, as the cost of competing forms of advertising rises, so will the income from hoarding sites), risk rates will be high. In the London & Provincial case which is quoted above the rental value was capitalised at 12%.
Rating valuations
Advertising rights are, of course, rateable because, although the right itself is an incorporeal hereditament, it is specifically mentioned in section 64 of the 1988 Local Government Finance Act as property liable to be rated. The advertising right, its structure and the site on which it stands, will normally form a separate hereditament and will be subject to a separate entry in the rating list. In the case of advertisements fixed to the sides of buildings, the value of the hoarding will be included in the value of the building, or, where the right itself is let separately from the building, the right will be a separate hereditament and will be separately assessed.
In most circumstances it should be possible to arrive at the rental value of the site for rating purposes by reference to evidence of rents passing(2). In exceptional cases and in the absence of market evidence, the rateable value could, in theory, be found by reference to the revenue of the site, deducting appropriate outgoings and an allowance for the operator’s profit, leaving the surplus to be apportioned between rent and rates.
References
1 London & Provincial Poster Group Ltd v Oldham Metropolitan Borough Council LT (1991) 04 EG 148. Compensation of a freehold site.
2 Poster Advertising v Noble (VO) LT 1983 RA 48.
