Valuing commercial property is both an art and a science as many text books on the matter will tell you. Commercial property valuation is often different to residential valuation in that residential valuations are generally based on an owner occupier basis and direct comparable sales information is often used to establish a value.
In commercial property valuations there are a number of methods depending upon the type of property, but one of the most common is the investment method.
The investment method of valuation is generally used for property which has a tenant in situ and is being valued with the benefit of the rental income. The Valuer firstly considers the level of rent being paid, the prospects for rental growth and the length of the lease. The valuer uses comparable market information, ideally looking at transactions where similar neighbouring properties, have been let. A Market Rent is then derived and compared with the passing rental, with appropriate assumptions made particular to future rental streams and potential voids.
Next, an assessment of the security of the income needs to be made. Property is no different to other asset classes in so much as an investor seeks a return on money having regard to the associated risk. For example, Tesco would be considered to be a much better risk than a sole trader and therefore a property n investor would generally be prepared to pay considerably more for an income from Tesco. Likewise, before investing in a Tesco property investment, an investor may consider the returns from investing directly in Tesco as a shareholder.
Using judgement, based once more upon comparable evidence, a yield can be applied to the rental stream and this commercial property value calculation produces a capital value, commonly referred to as Market Value.
Anderson, Wilde & Harris have a team of specialist property valuers who are experienced in valuing a wide range of property types including, but not limited to retail, offices and industrial units.