If buildings are torn down and replaced on average every 75 years, and site acquisition costs are typically 25% of total development costs, then the average annual rate of property depreciation below the HBU value of the site is:

Question

Quizplus · Accepted Answer

The building depreciates over 75 years, and if site acquisition costs are 25% of total costs, then the building represents 75% of the total cost. The annual depreciation rate is 75% divided by 75 years, which equals 1.0%/yr. However, since the building depreciates to zero, the average annual rate of property depreciation is 1.8%/yr.

If Buildings Are Torn Down and Replaced on Average Every