Whether you’re looking to invest in a commercial property, wish to sell a property within your existing portfolio or need to determine a realistic commercial property value for a prospective tenant, knowing how to decipher the market value of a commercial property is crucial.
As leading commercial estate agents, we deliver a long list of property services to ensure every aspect of your commercial real estate venture is finetuned. Our commercial estate agency is well-known for providing professional advice and services for your exacting requirements, with our dedicated team’s expertise in residential and commercial valuation, particularly comprehensive.
As our commercial estate agents will inform you, the benefits of property valuation are many. For commercial properties in particular, a professional, realistic, accurate and up-to-date valuation can provide the insights you need to process company accounts, secure essential funding, support and claim for end of lease repairs, determine the applicable Stamp Duty Land Tax (SDLT), and calculate any Capital Gains Tax due.
Whatever the reason behind your commercial valuation, there are several factors our commercial estate agency explores to determine the market value of a commercial property, including but not limited to the following…
Is the property in a good location?
When purchasing a commercial or residential property, one factor that should be carefully considered is its location. The right location will enable you to capitalise on your assets in both the short and long term, meaning your ambition to purchase and rent out a commercial property, buy and improve the property before selling, or hold onto it as a long-term investment can be accomplished.
A great location means different things to different investors, but it often comes down to the property’s surrounding amenities. A commercial property in a good location will be in close proximity to or within easy reach of other facilities, including shopping centres, apartments and other residential dwellings, bars and restaurants, and, most importantly, transport links.
If the commercial property doesn’t have access to such amenities, details of the forthcoming development of these types of facilities could insure its future and long-term commercial property value.
With this in mind, our commercial estate agents look beyond the property to determine its current market value.Â
How much income could the property generate?
If you plan to purchase a commercial property to let, its potential for income should be carefully scrutinised. The property’s income isn’t just determined by how much income it is generating with the current owner or investor, but how much potential it has to produce more.Â
Our commercial estate agency identifies areas for possible additional income, i.e. excess space that can be utilised by the investor or tenant to potentially increase revenue, to determine its market value.
Using the potential income of the property as a key factor in commercial valuation is referred to as the ‘income approach’. Alongside determining the potential income of the property, commercial estate agents incorporate the property’s cap rate to define its market value. The cap rate is essentially the net annual rental income of the property divided by its current value. Its operating net income is then divided by this cap rate to dictate its value.
How market value is determined via the income approach however isn’t set in stone. The cap rate can be influenced by certain aspects of the property or its surrounding amenities. Properties that offer advantages like on-site parking for example would have higher cap rates than similar commercial properties in the area without this characteristic.
The income approach is similar to the gross rent multiplier approach also used by commercial estate agents to determine the market value of commercial property. Instead of using net operating income, the latter calls on annual gross rents to assess commercial property value.
What about the building and the land it stands on?
Known in the industry, and to our commercial estate agents, as the ‘cost approach’, the current market value of any property (whether classed as commercial or residential) can be determined rather simply.Â
As the name suggests, the cost approach calculates the cost of the land and the building’s construction to calculate its overall value in the current market. It is important to note that this tactic doesn’t factor in the income potential of the property, which can leave sellers of commercial premises at a disadvantage.
How have similar properties sold within the area?
There’s another approach relied on by many commercial estate agents. The sales comparison approach utilises the prices or values of similar properties that are available or have recently been sold as benchmarks for commercial valuation. Similar sold or available properties may have the same or a similar number of floors or rooms, floor area, lot size, or spaces per floor as the commercial property being valued by a commercial estate agency.
The sales comparison approach is noted for its inaccuracy as a similar property may have other features that influence its market value or sale price.
Are apartments and units valued in a different way?
In short, yes. Apartment buildings or commercial premises that are divided into a number of units are often valued ‘per door’. This is when each unit is individually valued based on other units of a similar specification before being multiplied by the number of available units to determine the total commercial property value.
Need help with commercial or residential valuation?
Our commercial estate agency has decades of experience assisting landlords, investors and purchasers with commercial and residential valuation. We are even called upon to deliver valuations for specialist properties, including public houses, petrol stations, nightclubs and restaurants.Â
Our valuations are conducted by professional, independent and highly experienced Chartered Surveyors. When undertaking commercial and residential valuations, our valuers use the Royal Institution of Chartered Surveyors (RICS) Valuation Standards – also known as the ‘Red Book’ – to ensure a high standard of reporting and a market commercial property value that is as accurate as possible.Â
For further information on our commercial and residential valuation services, please contact our commercial estate agency today.
