Valuing a leased property in Morocco — over-rented, under-rented & Term & Reversion

Valuing a tenanted property is not the same as valuing a vacant one. The gap between contractual rent (passing rent) and current market rent (Estimated Rental Value — ERV) shifts the value materially. This guide explains the Term & Reversion method applied to the Moroccan context, with worked examples.

1. Two concepts to master

Passing rent (contract rent) — what the tenant actually pays under the lease today.

Estimated Rental Value (ERV) — the rent an equivalent property would obtain today on the open market.

When passing > ERV → property is over-rented. When passing < ERV → under-rented. The valuer must capitalise contract rent until next review/expiry, then ERV in perpetuity afterwards.

2. Term & Reversion method (RICS VPGA 2 / IVS 105)

The valuer separates value into two time blocks:

• Term: contractual passing rent until next review or lease expiry. Lower risk (contractual) → capitalised at a lower yield than market average.
• Reversion: perpetuity at ERV after contractual expiry. Capitalised at the market yield, then discounted to the valuation date.

3. Worked example — Casa Anfa under-rented office

1,200 sqm net office, leased to a law firm under a 49-16 commercial lease signed 4 years ago.

• Passing rent: 600,000 MAD/yr · ERV: 720,000 MAD/yr (+120k under-rented)
• Remaining lease term: 2 years · Term yield: 5.5% · Reversion yield: 6.5%

PV_term = 600,000 × annuity factor (2y, 5.5%) ≈ 1.108 M MAD

PV_reversion = (720,000 / 6.5%) / (1.065)² ≈ 9.77 M MAD

Term & Reversion value ≈ 10.88 M MAD · vs naïve (600k / 6.5%) = 9.23 M → +1.65 M latent upside captured.

4. Worked example — Maarif over-rented retail

220 sqm retail unit on Hassan II boulevard, leased to a bank under 49-16. Pitch quality dropped as retail shifted to Anfa Place / CFC.

• Passing rent: 360,000 MAD/yr · ERV: 280,000 MAD/yr (−80k over-rented)
• Remaining term: 3 years · Term yield: 6.5% · Reversion yield: 7.5%
• Renewal assumption: bail renewed at ERV (49-16 framework)

PV_term ≈ 0.953 M MAD

PV_reversion = (280k / 7.5%) / (1.075)³ ≈ 3.005 M MAD

Term & Reversion value ≈ 3.96 M MAD · vs naïve (360k / 7.5%) = 4.80 M → −0.84 M discount captured.

5. Moroccan specifics

• Commercial lease law 49-16 grants tenants a right to renewal. Eviction triggers indemnity payable. Limits the landlord's ability to re-rent at market quickly.
• Residential lease law 67-12 more flexible. The passing/ERV gap closes faster — typically model 1-3 year terms.
• Indexation clauses (INC index, sectoral indices) — always model the indexed passing rent until review, not just today's passing.
• Eviction indemnity on commercial lease can reach 30 months of rent + goodwill — must be integrated into reversion scenarios.

6. Six recurring mistakes

1. Capitalising passing rent as if it were permanent — the root error.
2. Ignoring indexation clauses — passing today is not passing in 12 months.
3. Using a single yield for term and reversion — negates the method's value.
4. Underestimating legal risk — 49-16 eviction indemnity can be material.
5. Forgetting non-recoverable costs and vacancy at reversion.
6. Confusing sale comparables with rental ERV comparables.

Further reading

• Cap rate survey Morocco commercial real estate 2026
• Commercial lease law 49-16 — 2026 guide
• Office building Hay Riad Rabat — DCF 10-year case study