| | | 2018 | | 2017 |
At the beginning of the year | | 4,143,094 | | 3,547,470 |
Transfers from investment property under construction | 406,226 | | 232,158 | |
Investments | 8,418 | | 3,086 | |
Total investments | | 414,644 | | 235,244 |
Disposals | | (37,249) | | (52,054) |
Net gain (loss) from fair value adjustments on investment property (like-for-like) | 598,939 | | 364,556 | |
Net gain (loss) from fair value adjustments on investment property | 66,495 | | 47,878 | |
In profit or loss | | 665,434 | | 412,434 |
In other comprehensive income | | - | | - |
Transfers out of level 3 | | - | | - |
Total investment property (level 3) at the end of the year | | 5,185,923 | | 4,143,094 |
The Fund’s investment properties are valued by independent external appraisers on a quarterly basis. On 31 December 2018, these properties were revalued by independent professionally qualified valuation experts with experience in the locations and categories of the investment properties valued (level 3). The carrying values of investment property as at 31 December 2018, and 1 January 2018, are in line with the valuations reported by the external valuation experts. In estimating the fair value of the properties, the highest and best use of the properties is their current use. There was no change to the valuation technique during the year and there were no transfers between levels 2 and 3 during the year.
The specifications of transfers from investments and investment property under construction and also the disposals are set out below.
Investments and transfer from investment property under construction | 2018 | 2017 |
Randstad | 347,618 | 140,294 |
Mid East | 38,573 | 14,979 |
Brabantstad | 28,086 | 79,588 |
Non-core regions | 367 | 383 |
Total investments and transfer from investment property under construction | 414,644 | 235,244 |
Disposals | 2018 | 2017 |
Randstad | (36,245) | (16,200) |
Mid East | - | (3,183) |
Brabantstad | - | - |
Non-core regions | (1,004) | (32,671) |
Total disposals | (37,249) | (52,054) |
The significant assumptions with regard to the valuations are set out below.
2018 | | | | | |
| | Randstad | Mid East | Brabantstad | Non-core regions | Total |
Current average rent (€/unit) | 1,109 | 897 | 933 | 847 | 1,055 |
Estimated rental value (€/unit) | 1,183 | 925 | 938 | 868 | 1,116 |
Gross initial yield | 3.9% | 4.8% | 4.4% | 5.2% | 4.1% |
Net initial yield | 2.9% | 3.4% | 3.3% | 4.0% | 3.0% |
Current vacancy rate (no rental units) | 1.5% | 1.1% | 0.8% | 0.8% | 1.3% |
Current financial vacancy rate | 2.8% | 1.6% | 0.9% | 1.1% | 2.5% |
Long-term growth rental rate | 2.6% | 2.5% | 2.5% | 2.3% | 2.6% |
Average 10-year inflation rate (NRVT) | | | | | 0.5% |
2017 | | | | | |
| | Randstad | Mid East | Brabantstad | Non-core regions | Total |
Current average rent (€/unit) | 1,076 | 868 | 916 | 824 | 1,025 |
Estimated rental value (€/unit) | 1,112 | 881 | 925 | 838 | 1,056 |
Gross initial yield | 4.5% | 5.5% | 4.8% | 5.8% | 4.6% |
Net initial yield | 3.3% | 4.0% | 2.7% | 4.1% | 3.3% |
Current vacancy rate (no rental units) | 1.4% | 0.9% | 2.6% | 0.8% | 1.3% |
Current financial vacancy rate | 2.3% | 1.5% | 3.1% | 1.6% | 2.2% |
Long-term growth rental rate | 2.5% | 2.2% | 2.3% | 2.1% | 2.4% |
Average 10-year inflation rate (NRVT) | | | | | 0.5% |
The valuation of the investment properties took into account a vacancy period ranging from one (1) to three (3) months. There are no rental incentives.
The net valuation gain (loss) for the year included a positive fair value adjustment of € 667.4 million (2017: € 412.5 million) relating to investment properties that were measured at fair value at the end of the reporting period.
Direct operating expenses recognised in profit or loss include € 1.2 million (2017: € 1.1 million) relating to investment property that was vacant. Investment property includes buildings held under finance leases, the carrying amount of which is nil (2017: nil).
Sensitivity analysis
The appraisal of the portfolio implies a net initial yield of 3.0% (2017: 3.3%). If the yields used for the appraisals of investment properties on 31 December 2018 had been 100 basis points higher (2017: 100 basis points higher) than was the case at that time, the value of the investments would have been 27.0% lower (2017: 25.5% lower). In this situation, the Fund’s shareholders’ equity would have been € 1,435 million lower (2017: € 1,088 million lower).
The table below presents the sensitivity of the valuation to changes in the most significant assumptions.
| | | 2018 | | 2017 |
Change rental rates | – 5% | 5% | – 5% | 5% |
Value of the investment property change | (259,296) | 259,296 | (207,155) | 207,155 |
| | | 2018 | | 2017 |
Change net initial yield | – 25 bps | + 25 bps | – 25 bps | + 25 bps |
Value of the investment property change | 474,185 | (400,876) | 336,774 | (289,680) |