Determining the value of a commercial property is important for a number of reasons. If you are in the market for a commercial property, a valuation is key to determining the risk level involved in purchasing a property either for commercial use or for investment. A valuation will predict what price the property would sell for in the open market, helping to ascertain if it is being sold at a fair price and informing price negotiations. Also, a valuation will help determine how the asset will perform as part of a property portfolio.
The value of a commercial property is also of importance when determining underwriting. Most lenders will want to see what the value of the property is to work out the loan-to-value ratio before they commit to a mortgage. The value appraisal will give you a baseline that the lender can use to determine the loan it is willing to provide.
For existing owners, a property valuation, both current and potential value, will help inform strategic decisions about developing the property further and potentially increasing the value. In summary valuations are the foundation of many financial decisions that are intrinsic in purchasing and investing in the commercial property market.
Calculating the value of commercial property is complex and laborious and is best left to an expert to manage. While residential property is predominantly valued based on similar comparable prices in the neighbourhood, determining the value of commercial property will depend on other variables in addition to the comparable method.
Commercial property values are most often calculated on the amount of rental income the property can generate each year. Once a rental level has been determined, a level of risk in terms of a percentage is applied to the current/estimated rental income. The percentage applied is called the All Risk Yield (ARY)
The rental income is then divided by the applied yield rate, which is the percentage amount investors would expect to see as a return annually and this returns the property value.
We are members of the Royal Institution of Chartered Surveyors (RICS) and the Society of Chartered Surveyors Ireland (SCSI) and as such we adhere to the RICS Valuation Professional Standards, otherwise known as the “Red Book”. We undertake independent property valuations across all sectors ranging from small single buildings to large portfolios. Working in conjunction with banks, receivers and wider advisory teams we offer independent advice to ensure the best outcome for your investment.