Navigating Commercial Property Valuation: 8 Key Considerations

31 August 2023, by Verity Editor

blue street sign "commercial property"

Whether you’re a seasoned real estate investor or a first-time business owner looking for the perfect commercial premises, understanding the fundamentals of property valuation is essential for ensuring you don’t get caught out.

Aside from helping you determine the fair market value of a property, effective property valuation enables you to gain a better insight into the world of real estate transactions and make more informed decisions as a landlord or business owner.

But with so many different aspects of a property valuation, what should you prioritise? Our team of experts is here to help you find out.

1. The Location

Similar to residential property, location will always play an important role in the commercial valuation of offices and other commercial buildings. From strategic business centres to areas that offer adequate housing for staff, the location of commercial real estate can significantly impact its value.

When trying to determine the value of property in a certain location, consider:

  • Its proximity to local amenities (including access to essential services such as hospitals)
  • Ease of transportation and commuter routes
  • Neighbourhood reputation (including crime rates and the reputation of local schools etc.)
  • Future development plans for the area
  • Environment factors e.g., local parks

2. Property Size and Layout

The layout and size of a property can also impact its valuation, especially in sought-after locations where larger spaces get snapped up quickly. Businesses can more easily adapt an area to their needs with a spacious layout and well-designed rooms.

High-value spaces are generally the ones with:

  • More square footage
  • Good floor plans
  • Flexible configuration options, e.g for the addition of restrooms, break rooms, etc.
  • Good natural light and ventilation
  • Scalability value

2. Comparable Sales

When it comes to property valuation, comparable sales (comps) can be crucial benchmarks for determining the true value of a property. By examining recent sales or even the latest rental price of similar properties in the same neighbourhood, you can better understand how fair commercial valuers or property companies are.

Especially when it comes to property purchase, a sales comparison approach can help you ensure that the value of your chosen space is:

  • Grounded in current market value trends
  • Supported by real transactions
  • Accurate, objective, and unbiased
  • Fairly adjusted for differences in features and size
  • Reflective of the specific locality

4. Property Condition

While it might seem obvious that the condition of a property influences its value, you’d be surprised by how many people don’t realise just how much of an impact it can have.

Well-maintained properties with modern amenities will naturally outshine those in need of repair or upgrades — but how aware are you of what condition a property is in?

To ensure you’re evaluating the condition of a property correctly, we suggest that you:

  • Conduct a physical inspection: If possible, hire a professional to carry out a thorough inspection of the property’s foundations, roof, walls, floors, and signs of water damage.
  • Ensure safety and code compliance: Always ensure the property meets safety standards and local building codes.
  • Check the maintenance history: Review past maintenance and repair records to assess upkeep.
  • Evaluate functional systems: Check if electrical, plumbing, HVAC systems, and appliances are in good working order.
  • Assess the quality of materials: Consider the quality of construction materials used throughout the property.
  • Anticipate potential repairs: Identify any immediate or future repairs needed and estimate associated costs.

5. Market Trends and Demand

Property values can be highly dependent on market trends and demand. This is why taking the time to understand supply and demand dynamics, as well as current market trends, is essential for accurate valuation.

To ensure you’re taking the broader market landscape into account, it’s recommended that you follow these steps:

Step 1 — Research local trends: Study the local real estate market to identify trends in property prices and demand (if necessary, speak with local estate agents and property experts).

Step 2 — Assess supply and demand: Understand the balance between available properties and buyer/tenant demand.

Step 3 — Monitor economic indicators: Keep an eye on economic factors influencing real estate, like interest rates and employment rates.

Step 4 — Evaluate neighborhood growth: Look for signs of neighbourhood development or decline that could impact property values.

6. Economic Factors

Following on from the previous point, it’s important to emphasise just how influential economic factors can be on the value of a commercial property. Factors such as interest rates, inflation, and the economic climate can have serious implications when it comes to valuations.

By acknowledging these economic forces in advance, you can more accurately:

  • Predict financing cost
  • Plan for inflation
  • Evaluate market stability
  • Mitigate risk
  • Calculate Return on Investment (ROI) & Net Operating Income (NOI)

Tip: Consider consulting with financial advisors or real estate professionals to help you understand how economic factors might influence long-term property investment decisions, e.g., metrics such as the gross rent multiplier approach (GRM).

7. Zoning and Regulations

Local zoning regulations can dictate how a property can be used and developed. By understanding these zoning rules ahead of time, you can ensure that the property’s value is assessed accurately within the context of how the space is being advertised and what limitations might exist in the future.

To get a handle on local zoning regulations, it’s recommended that you:

  • Familiarise yourself with local zoning maps (these should contain information about specific zoning codes and categories in your area)
  • Reach out to local planning departments for information on current zoning regulations
  • Are aware of any proposed or upcoming changes to zoning regulations that could impact the property

8. Enhancements and Amenities

Upgrades and unique property features can set a property apart and elevate its market worth — but what enhancements can influence its valuation positively?

Just some of the features becoming increasingly important to businesses include:

  • Modern infrastructure: Up-to-date technology, electrical systems, smart systems, and communication infrastructure.
  • Amenities: On-site gyms, cafes, outdoor spaces, relaxation areas.
  • Safety measures: Security systems, fire safety equipment, emergency protocols.
  • Sustainability: Green materials, eco-friendly practices.
  • Flexible spaces: Adaptable layouts for different work arrangements.
  • Accessibility: Compliance with accessibility standards.
  • Quality finishes: High-quality, long-lasting, and easy-to-maintain materials.
  • Parking: Adequate parking (especially in urban areas).

Want to gain even more insights about effective property management?

Armed with these insights, we hope you’re feeling more equipped to navigate the world of commercial property valuations. However, if you’ve already taken the leap and are looking for other ways to save money — help is on hand!

At Verity, we can help you decrease your business rates and save 100% on empty commercial properties without the red tape. Taking care of everything from legal compliance to handling the rebate process, we’ve helped businesses all over the UK reduce their bills and even remove their liability entirely.

To achieve financial efficiency and manage your property more effectively, request a callback from a member of our team today.

I have used Verity for several years and I am happy to recommend them. They provide an efficient service in a timely manner.

John Roberts

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